Driving Demand: India's Electric Vehicle Revolution Towards Sustainability

A new India under a determined and able leader is surging towards becoming a global powerhouse. Even in the transformational journey, India remains a responsible nation, actively pursuing a sustainable and environmentally friendly future, and has set ambitious goals to reduce its economy's carbon intensity. In this light, electric vehicles (EVs) have emerged as an undeniably compelling solution as it has 40–60% better fuel efficiency while reducing the carbon footprint by 30–50% compared to internal combustion engines.

The government is banking heavily on the EV revolution and has set a target of 30% Electric Vehicles (EV) by 2030. In pursuit of this objective, the government has introduced a range of incentives and initiatives to stimulate demand and nurture the EV ecosystem. The measures include Faster Adoption and Manufacturing of Electric Vehicles (FAME) I & II initiatives, tax reductions, Production Linked Incentive (PLI) Scheme, specifically designed to promote the production of Advanced Chemistry Cells and a slew of financial and non-financial incentives to build EV charging stations. Also, the states have come out with their state-specific policies to expedite the adoption of EVs. These policies have helped India to achieve 2.2 million units of EVs in 2023 from less than 20,000 in 2016. Reflecting these strides, a recent projection by Bain & Company anticipates India's electric vehicle (EV) value chain revenue to surge from $76 billion to $100 billion by 2030, with a potential profit pool ranging from $8 billion to $11 billion.

However, as we strive to speed up EV adoption and reap the benefits, we must confront several challenges plaguing the EV ecosystem. Firstly, from the demand perspective, people are still reluctant to choose EV 4-wheelers mainly because of high upfront costs, unestablished reseller value, and range anxiety. For example, consider the Tata Nexon (XZA Plus)Petrol, which costs approximately 4,40,000 rupees less than its EV counterpart, the Tata Nexon Prime (XZ Plus).A similar pricing gap is visible across most EV models in the market. 

Moreover, when price sensitivity is coupled with the problem of inadequate charging infrastructure, potential electric vehicle buyers go for conventional engines. The other prominent concern revolves around the apprehension that an electric vehicle's charge may not last the entire journey, commonly referred to as "range anxiety." The charging time factor is also intrinsically linked to range anxiety, with EVs taking up to 8 hours to achieve a full charge from empty when utilizing a 7kW charging point. Adding to the woes, Banks offering loans for electric two-wheelers in both low- and high-speed segments charge 1%-4% higher interest rates than ICE vehicles, while NBFCs impose 1.5%-3% higher interest rates. 

To address the demand side challenges, firstly, the government must create awareness and showcase that EVs save costs in the long run despite higher acquisition costs. An analysis of the Tata Nexon petrol and electric variants, which have nearly identical product specifications, illustrates that the extra expense incurred while purchasing the EV variant can be recouped once the vehicle has covered a distance of 75,000 km. Further, the government and companies should target middle-class youth, who are increasingly inclined towards premium goods.

Source: Mint

Additionally, there is a need to promote EV financing through banks, as currently, many financial institutions are reluctant to provide financing due to concerns about resale value and product quality. Even when financing is available, EV buyers often face unfavorable tenures and interest rates compared to internal combustion engine-based vehicles. The government should also encourage cab aggregators to transition to EVs and mandate that all government used vehicles be 100% electric, further supporting the EV ecosystem. The arrival of Tesla in India will undoubtedly elevate the EV market, but competition in this segment is essential to drive price reduction and foster innovation.

Secondly, to reduce the cost of electric vehicles (EVs), the price of batteries should also come down, as the battery's cost is approximately 40% of an electric vehicle's overall price. India has been actively promoting the adoption of EVs powered by lithium-ion batteries, but a significant concern arises as about 75% of the lithium-ion imports originate from China. While India possesses nominal lithium reserves, its heavy reliance on China for imports poses a considerable risk to the industry. As per the report by Fortune, India imported 5,486.18 lakh units of lithium-ion batteries, amounting to a total expenditure of $1,791.35 million.

Recognizing the importance of critical minerals, the government has initiated discussions with the Chilean government. In addition, the government established Khanij Bidesh India Ltd (KABIL) in August 2019, which aims to identify, acquire, develop, and process strategic minerals abroad for India's domestic use. Also, to reduce vulnerabilities in global supply chains and ensure self-reliance, Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 (MMDR Amendment). This legislation seeks to attract private sector investments in the exploration of critical and deep-seated minerals within the country. It is worth noting that only 10% of India's apparent geological potential (OGP) has been explored, and merely 2% of OGP has been mined. Many minerals, including gold, diamonds, copper, lithium, and cobalt, are located at significant depths, ranging from 300 meters to 4 kilometers below the surface.

The government has to sustain this momentum and accelerate innovation in alternative battery chemistries that require fewer critical minerals, expand battery recycling initiatives, strengthen cooperation between producer and consumer countries, promote environmentally and socially sustainable practices, and encourage knowledge sharing within the industry. It will also address supply-side concerns.

Simultaneously, to accelerate the electric vehicle (EV) revolution in India, it is crucial to focus on building a robust charging infrastructure for four-wheelers. Presently, most EV owners rely on home charging, which is time-consuming, and the existing public charging network is inadequate. To meet the growing demand and reduce range anxiety, India needs to install over 400,000 charging points annually, aiming for a 1:40 ratio of chargers to EVs by 2030. Currently, the ratio stands at 1:135, far from the global standard.

Fig: Number of EVs to Public Chargers

To address the challenge of insufficient charging infrastructure, it is essential to integrate charging networks into urban planning. This should be applied not only to new developments but also retroactively in existing areas. Additionally, Special Purpose Vehicles (SPVs) need to be established for rural regions, which can help extend the reach of charging infrastructure, ensuring that EVs become a viable option in both urban and rural settings. To ensure the successful rollout of e-mobility infrastructure, building local capacity within authorities is vital.

This involves streamlining diverse funding opportunities, adopting digitally enabled strategies, and sharing knowledge among local authorities. Additionally, fostering cooperation between Distribution System Operators (DSOs) and public authorities can enhance the preparation for network development and make siting decisions more transparent for Charging Point Operators (CPOs). The incentivization of charging infrastructure installation in underprivileged and economically challenged communities through regulatory measures is also necessary. The recent announcement from the Tamil Nadu power generation and distribution division, offering a substantial 50% reduction in energy charges for EV charging stations, is also a commendable initiative and can be followed.

Moreover, strategic partnerships between utilities and major retail chains, hotels, and smallervenues can provide consumers with convenient and diverse charging options at popular destinations, bolstering confidence in EV adoption. Standardized tendering processes for land acquisition should be developed to unlock revenue opportunities for both public and private landowners, facilitating the creation of EV charging hubs where they are most needed. Finally, repurposing existing fuel stations as EV charging locations can efficiently leverage existing infrastructure to meet the growing demand for EV charging points across the country.

Furthermore, encouraging domestic manufacturing of EV charging components is crucial. The importation of these components, including electronic elements and semiconductors, amounted to over US$5,800 million in the previous year (Apr- Dec 2022). To reduce India's dependency on imports and tap into the opportunity to become a global supply hub for electric vehicle supply equipment (EVSE), incentives similar to the Production-Linked Incentive (PLI) scheme should be considered under the Aatmanirbhar Bharat program.

Finally, Taking inspiration from global leaders like California and the Joe Biden government, which have set ambitious Zero Emission Vehicle (ZEV) mandates, India has the opportunity to follow suit and further accelerate its EV revolution. By pursuing these goals with unwavering determination, India can lower its carbon emissions, stimulate domestic manufacturing, create sustainable jobs, and set an example for the world in transitioning to a greener and more environmentally responsible future. The electric vehicle journey in India is not just a transformation of mobility; it is a transformation of the nation towards a cleaner, greener, and more sustainable future.