Story Highlights

• There were few initiatives that the Union government was as gung-ho about as much as its electric vehicles policy. So, it was stunning when it decided mid-February that it wouldn't have a policy at all.
• It turns out that aggressive lobbying by the $93-billion automobile industry and a realisation within the government that its 'EV nation by 2030' plan was unrealistic led to pulling back the EV policy.
• A proposal by automakers lobby SIAM that India look at a target of 40% of automobile sales to be of EVs and aim at 100% only by 2047 seems to be gaining traction as a more realistic target now.

It was February 7. The banquet hall at Pravasi Bharatiya Kendra in New Delhi’s Chanakyapuri area had more than 150 people teeming around. The meeting was called by Niti Aayog, the Indian government’s policy think tank, and its officials were directing the show. The agenda: recommendations on India’s electric mobility plan by six sub-task groups with members from various ministries, auto companies and their lobbies, and consultants.

“One of the members of one of the six groups said that the government had set a very aggressive target of making India a 100% electric vehicle (EV) nation by 2030…,” recounts a person, who runs an auto company and was present at the meeting.

The member was interrupted by Amitabh Kant, Niti Aayog’s CEO. “The government didn’t say that. An individual saying that doesn’t mean that the government said it,” said Kant, according to the person.

It wasn’t clear who Kant was referring to when he said “individual” but there were at least influential people in the Narendra Modi administration who had strongly pitched for EVs for nearly two years. In March 2016, Piyush Goyal, then the minister of power, had said that by 2030 India could be a 100% EV nation. Goyal had then talked of Indians buying electric cars for a zero down payment and paying for it from savings over what they would have paid were the cars run on petrol or diesel.

The ‘EV nation by 2030’ target was repeated several times by Goyal and others in the following months despite widespread disbelief at being able to wean away one of the world’s leading automobile markets – Indians buy three million cars, 15 million bikes and scooters, and some 800,000 buses and trucks a year – from fossil fuels to battery-powered technologies in less than about 13 years. According to a June 2016 report by consultancy EV, India has some half a million EVs in all on its roads counting electric two-wheelers, e-rickshaws, electric cars and buses but most of these run on lead-acid batteries, which are fast getting antiquated. Just 1,300 electric cars and 44,000 electric bikes were sold in 2016-17, according to a report by industry group Auto Component Manufacturers Association and Munich consultancy Roland Berger.

In September 2017, after Goyal moved to the railways ministry, Nitin Gadkari, minister of roads transport and highways, made two public statements that seemed to reiterate the government’s resolve on EVs. At the annual convention of the Society of Indian Automobile Manufacturers, or SIAM, the industry body of car, truck and two-wheeler makers, on September 8, he was blunt while addressing industry executives. “We should move towards alternative fuel… I am going to do this, whether you like it or not. And I am not going to ask you. I will bulldoze it. For pollution, for imports, my ideas are crystal clear…,” Gadkari said.

Many in the audience were stunned. “We felt threatened… the conviction of the government to shift to EV was at a hysterical level,” recalls an industry association official. The government wouldn’t even hear about hybrids that use both an internal combustion engine and batteries. “The focus was only on battery-operated vehicles,” the official said. “They were adamant, and were not willing to listen.”

Later that month, minister Gadkari reiterated that India would stick to its 100% EV nation plan for 2030 and even said he had cleared the nation’s EV policy. “Now NITI Aayog will send it to the cabinet in a couple of weeks (for its approval),” he was quoted as saying on September 21. About four months later, Gadkari said on January 20 the EV policy was pending before the cabinet.

But that vision doesn’t hold true anymore. Nine days after the meeting at Pravasi Bharatiya Kendra, on February 16, Gadkari dropped the plan of bringing out an EV policy. Kant supported Gadkari and said that Niti Aayog will work on bringing out an “action plan” for EVs and that due to fast-changing nature of EV technology, a policy wasn’t required. By all indications, the decision had been taken by the February 7 meeting of Niti Aayog and the sub-task groups. A request for comment sent to Kant Friday remained unanswered at the time of publishing this story.

An electric volte-face

What caused the Modi government to pull back on electric mobility, perhaps the most important element of its big bet on solar energy and its use? Most of the people interviewed for this story asked to stay anonymous since it is controversial topic.

Our reporting shows two factors behind the U-turn: aggressive lobbying by automakers and a realisation within the government that its 2030 deadline was unrealistic. “Except for Mahindra, every carmaker is lobbying for petrol and diesel cars,” says the auto company CEO quoted at the beginning of this story. “No bringing out an EV policy and shifting from the stand will benefit the existing OEMs.”

After the SIAM Convention in September, the worried industry lobby decided it had to make its voice heard. It had been opposed to the all-electric plan for 2030, which it viewed as rushed, for over two years. It decided to double down on a white paper with a complete roadmap. The white paper published in December advocates a staggered shift towards EVs. India should try and achieve 40% automobile sales from EVs by 2030, by when 100% vehicle sales for city public transport would be electric.

 

Alongside, SIAM told the government that the auto industry will try to take the total sales of electric and hybrid vehicles to 60% by 2030 – the additional 20 percentage points to be accounted for by hybrid technologies. If the government needed convincing of the industry earnestness, it was there at this year’s Auto Expo for all to see: the theme of which was electric mobility. By 2047, which also marks 100 years of Indian independence, the country would make the complete shift to EVs, the SIAM paper suggests.

Meanwhile, work on the EV ‘action plan’ is well underway. Since February 7, there have been already been five meetings between the auto industry and various government officials, including Anand Geete, Union minister for heavy industries and public sector enterprises; joint secretary Vishwajit Sahay; director Pravin Aggarwal; and others. Separately there have been meetings with Niti Aayog officials, too. It is likely the SIAM suggestion will be accepted with a few changes.

This SIAM plan would help stagger investments, too. Industry veterans estimate that the shift to EVs with the earlier ‘EV nation by 2030’ target in mind would have needed investments of $3-4 billion in just five years. “This would have been additional investment over investment in BS-VI, volume expansion and bringing out new models,” says the India CEO of a large European carmaker. BS-VI is short for Bharat Standard-VI, the emissions norm set for 2020 by India.

The government also faced pressure from India’s oil companies. An estimated Rs 80,000 crore is expected to be pumped into the upgrading existing refineries to manufacture fuel that is compliant with BS-VI norms. “If everything shifts to electric, what happens to all the investment… there has to be a return on investment,” says a project manager of BPCL, who is working on the upgradation of Chennai refinery.

 

There was a question of geo-political strategy, as well. The logic for the push towards electric mobility has been to steer India away from its overdependence on carbon-rich coal and imported oil. Some 57% of India’s energy needs are met by coal and nearly 30% by oil, according to the BP Strategic Review of World Energy, June 2017 – making it the third-ranked oil importer in the world behind only the US and China. Diesel and petrol make for half of India’s oil consumption.

Such a dependence on imported oil for energy use in the world’s fastest economy has held ominous portents for long — more so now with both firming global oil prices and consumption volumes shooting up. Oil imports in India rose 46% to $9.6 billion in January making it almost certain that the government’s estimate of an oil import bill of $88 billion will not hold. Higher global oil prices have several ripple effects on the economy: they stoke inflation, put pressure on the dollar-rupee exchange rate, force the government to reduce levies on oil products and see deficits swell, and, finally, put an upward pressure on interest rates.

The virtuous triad

On the other hand, the solar energy, battery storage, electric mobility approach presents a win-win for India. The country gets more than 300 days of sun. There are solar panel or thin film technologies that can generate energy even with the haze over large parts of India. Grid parity is already a reality with solar energy. India is set to complete fiscal 2018 with over 20 Gigawatt-hour solar capacity with a target of 100 GWh by 2022. “India added 9GW of solar capacity, higher than new thermal capacity addition for the first time in 2017,” says Sujoy Ghosh, CEO of First Solar India, the subsidiary of the American photovoltaic manufacturer.

Battery prices, driven by Lithium-Ion (Li-ion) technology and design, are sharply falling affording an inexpensive and 24×7 source of energy when paired with solar-generated electricity. EVs make for the last piece in the three-piece, virtuous jigsaw – at least on paper.

In their meetings with the government, industry representatives reminded Niti Aayog and ministries that in a complete shift to EVs, India will go from being dependent on members of the OPEC (Organization of the Petroleum Exporting Countries) to being a captive market for China, which already has a 55% share of the global market for Li-ion batteries today (the US has just 10%) with projections that it will increase that to 65% by 2021.

There are other problems, too, explains Rahul Mishra, principal at consultancy firm AT Kearney. “Why place your bets only on electric mobility, when other forms of cleaner and greener mobility are available,” he says, counting fuel cells, ethanol, and hydro fuel among other alternatives. “We should let the industry take its course as long as the end objective can be obtained.”

Given the compelling economic, environmental and strategic logic, there is little denying India was in the right direction with its EVs push. But, it may have tripped on sequencing its policies and not having co-opted the large domestic industry into the planning.

Norway, though a country with fewer people than the city of Ahmedabad, is a good example of how things should be done. It started its EV initiative in the early 1990s. In a country counted among the most onerous tax regimes in the world (personal income tax is close to 55%), capital city Oslo removed purchase tax, which was at least 10,000 Euros and the value-added tax on EVs. An EV driver got perks – free parking, free charging, no toll taxes, free ferries, and free rides through tunnels. The state paid for and built the charging infrastructure.

Result? Oslo has the highest penetration of EVs at 36%. By 2020, the Norwegian government targets a reduction of CO2 emissions by 36% compared to 1990 levels. Oslo has also set a target of becoming a zero-emission city by 2030.

China has a lower EV penetration but is selling EVs in large numbers. In the 11 months through November 2016, it sold 846,447 passenger and commercial EVs, according to a report. It has a target of over five million EVs (they are called New Energy Vehicles or NEVs in China) on its roads by 2020 and it looks well on course to meet that target.

Electric utility State Grid Corporation of China plans to install 100,000 charging stations along 11 major routes by 2020. This installation will cover 202 cities and 36,000 km of expressway. For manufacturers of EVs, China has mandated that they will need to get credits for NEVs equivalent to 10% of annual sales by 2019, rising to 12% in 2020, and there on. The idea is to bring to zero the production and sale of internal combustion engine cars. Simultaneously, China is working on improving vehicle efficiency through a dynamic subsidy model. According to new rules announced earlier this year, eligible EVs must have a minimum driving range of 150 km, up from 100 km last year.

India’s charging infrastructure, by comparison, is anaemic. There have been plans announced by municipality administrations, state governments, and public sector and private companies but they are in the range of only a few dozens, not more. Mass adoption of EVs without thousands of charging stations is a pipedream – something the government is studying plans for.

Standout startups

India has a handful of startups racing to develop and launch EVs for the domestic market. It is early to figure out the impact on the EV ecosystem but at least one of the older EV companies says it is re-looking its plans. “There will be substantial change in our plans. There will be scaling down,” says Naveen Munjal, managing director of Hero Electric. “From the looks of it, it seems that EVs will be a marginal industry.”

The most prominent startup in the EV space is, surprisingly, unfazed by the government flip-flops. Tarun Mehta, co-founder and CEO of Ather Energy, one of the earliest players in the Indian EV space, feels that the startup ecosystem per se won’t be affected by this sudden change in the government’s stance. “The government was talking about coming up with a policy. Not having come up with a policy does not stop what is really happening right now. I don’t think any OEM was building a business plan assuming that the government is going to do something,” he says.

Mehta feels that the problem will be with getting the incumbents on board the EV ecosystem. “For the incumbents to invest in something, they need a solid reason. They have other priorities, other businesses, other places to invest their capital so unless the government sort of sets up a clear roadmap, it is a little hard for existing OEMs to justify to why invest in this (EVs) early on.”

He stressed that it was too early for government decisions to shape the future of EVs in India. “At this point, if it’s a large OEM or whether it is a startup, the end objective is not the top line or bottom line. The end objective is to actually learn and figure out what is working, how the products work on the roads, what our customer is saying, how the service is panning out. None of that should be really impacted by what the government is saying,” says Mehta.

Still, there is the danger of Indian companies ceding the local market to global competitors. Varun Mittal, CEO and co-founder of Emflux Motors, a maker of high-performance electric bikes, says companies from South East Asian auto hubs are already here.

“If a company or OEM is just looking for the government to decide what the future course will be, they will lose out on the global race. Especially Chinese, Korean and Taiwanese players who will develop these EV products for the global market will bring these products to India as well and they are very competitive,” says Mittal.

Chinese manufacturers like BYD and Changsha Sunda New Energy Vehicles Technology have already announced plans to enter the Indian market. “Bringing a foreign product to India is not difficult anymore. They can do local tooling. Some of these manufacturers are even converting their existing solutions to EV,” says Mittal.

EV penetration in India in 2017, at a low 0.2%, can grow to 18% with regulatory support, says Roland Berger. But, with the government flip-flops, the future for EVs in the country is suddenly looking turbid. “From the looks of it, it seems that EVs will be a marginal industry,” says Hero Electric’s Munjal.

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