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ELECTRIC VEHICLES IN INDIA : A GERMI WHITE PAPER
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ELECTRIC VEHICLES IN INDIA : A GERMI WHITE PAPER
ELECTRIC VEHICLES IN INDIA : A GERMI WHITE PAPER
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“We have a responsibility to protect the rights of generations, of all species, that cannot speak for themselves today. The global climate change requires that we ask no less of our leaders, or ourselves.” – Wangari Maathai
In 2010, National Research Council of the U.S. concluded that “climate change is occurring, is very likely caused by human activities, and poses significant risks for a broad range of human and natural systems”. But it is also true that many of us have realized the importance of human role in preventing it. Clean and green energy are today’s talk-of-the-day. The world has already shown the importance of renewable energy as an inevitable measure to help prevent the effects of global warming. The world (in 2013) added more capacity for renewable power (143 GW) than coal, natural gas and oil combined (141 GW) 1. As the energy generation is shifting towards renewables a similar need exists in the utilization of energy. In the transportation sector, the importance of alternative fuel vehicles is acknowledged as an alternative to the petrol and diesel powered vehicles that emit the Green House Gases (GHG). But the less matured technology of alternative fuel vehicles require more investment & new infrastructure than conventional vehicles to make them selfsustaining in the market. Developing countries like India need to allocate funds strategically if they are to develop a sustainable market for electric vehicles (EV). The primary focus of this report is – 1. To understand the financial viability of an EV in India compared vis-à-vis with an Internal Combustion Engine Vehicle (ICEV) from the same segment. 2. To see if the recent subsidy disbursed by the Government under the ‘Faster Adoption & Manufacturing of Electric (& hybrid) vehicles in India (FAME)’ scheme could accelerate the market or not. 3. To suggest ways in which both the government and the EV manufacturers should recalibrate themselves to address and perhaps create the market in India. In January 2013, the Prime Minister of India launched the National Electric Mobility Mission Plan (NEMMP) 2020 with a view - to enhance national energy security, mitigate adverse environmental impacts from road transport vehicles and boost domestic manufacturing capabilities for electric vehicles. Chapter 1 describes the policy framework and
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Fossil fuels just lost the race against renewables, Bloomberg Business, http://goo.gl/xJmRfT
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subsidies for EVs in India and underlines the necessity for stability in policy and fiscal incentives for the EV market . The first attempt at incentivizing the EV market was made back in 2010 when the Ministry of New & Renewable Energy (MNRE) announced a subsidy scheme. But how has the market reacted to the subsidy since then? Where does India stand globally in terms of EV deployment, incentivizing EVs and building infrastructure for EVs? Chapter 2 describes the market outlook globally and nationally. Most importantly it infers that India is nowhere close to deploying EVs at a scale compared to China or the U.S. Chapter 3 evaluates the financial viability of EVs (4wheelers) in India. The comparison of an EV vis-à-vis with an ICEV from the same segment, shows that the subsidy under the FAME scheme is just not enough to incentivize users to switch to EVs as their primary car.
i. ii. iii. iv. v. vi.
Chapter 4 recommends to the Indian Government and the EV industry, the following; so as to adhere to the NEMMP targets: There must be long-term clarity on policy for electric vehicles. More subsidy is essential, until the EV market becomes selfsustaining. Battery swap program may turn the markets. Electric-car sharing is definitely worth looking into. Electric buses may well be suited for urban areas. Create a performance-oriented market.
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The twentieth century has been the era of energy from nonrenewables mainly because of the ease of use, availability and the low cost of fossil fuels. However the twenty first century is witnessing a paradigm shift in energy generation 2 and consumption as a consequence of the negative impact of fossil fuels on the environment and concerns over climate change. The shift is also recognized in the global automotive industry where alternative fuel technologies and battery electric vehicles (BEVs) are attracting heavy investments 3. In India, the transportation sector alone accounts for about one-third of the total crude oil consumption and the road transportation accounts for more than 80% of this consumption. It is expected that from 2006 to 2030, three quarters of the projected increase in oil demand will come from transportation4. In addition, the World Energy Outlook, 2015 states that fossil fuel based transportation is the second largest source of CO2 emissions globally after power generation. This emphasizes the need for alternative cleaner fuels including electric mobility, especially in India which is one of the largest automotive markets in the world with a total of more than 141 million5 user vehicles registered (till 2011). The increasing fuel consumption increases the demand for crude oil production. However, the domestic crude oil production is rather sluggish and the gap between the domestic production and consumption is widening. It is expected that by 2020, India will import 92% of all its consumed crude oil6. This poses a serious challenge to India’s energy (fuel) security. Therefore urgent measures need to be taken to decrease the country’s dependence on fossil fuel. Clearly, electric mobility can help in lowering this oil deficit where India needs to bring forward the
Fossil fuels just lost the race against renewables, Bloomberg Business, http://goo.gl/xJmRfT Global EV Outlook 2015, http://goo.gl/M0oH54 4 National Electric Mobility Mission Plan 2020, http://goo.gl/yTejZf 5 Total number of registered user vehicles in India, https://goo.gl/E6HqRY 6 Refer footnote 4 2 3
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Government-Industry partnerships to foster sustainable solutions in mobility especially, electric mobility.
Background The NEMMP 2020 is the National Mission that provides the vision and the roadmap for the faster adoption of xEVs (full range of hybrid and electric vehicle) and their manufacturing in the country. Prior to the NEMMP’s release, Ministry of New and Renewable Energy (MNRE) offered an incentive scheme to push sales of EVs in India. The scheme was effective from November 11, 2010 to March 31, 2012 and had a budget outlay of INR 95 crore (USD 14.6 million7). Although the incentives were low, the EV market especially in the twowheeler segment witnessed a significant uptake. But termination of the scheme resulted in steep downfall of the EV market. After two months of its termination, close to 33% of dealers reverted to their earlier business and more than 20% closed their shutters 8. A similar trend was observed in the sales of India’s only EV car manufacturer – Mahindra Reva; number of manufactured units fell by 40% after the termination of subsidy (see figure 1). This underlines the need for stability in policy and fiscal incentives if the government wants to establish a vibrant EV market in India. 600 500 400 300 200 100 0
40%
2011-12
2012-13
(during the subsidy)
(after the termination of subsidy)
Figure 1: Number of units manufactured by Mahindra Reva9
1 USD = 65 INR assumed for the entire report Electric Vehicles sales drop after subsidy scheme ends, The Economic Times, http://goo.gl/ImlSg5 9 Sustainability Review 2013-14, Mahindra Sustainability Report 2013-14, http://goo.gl/wK8wXl 7 8
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Goals The NEMMP10 targets 6-7 million EVs on road by 2020 of which 4-5 million are expected to be two wheelers. According to the NEMMP, successful implementation of the NEMMP will result in fossil fuel savings of 2.2 – 2.5 million tonnes by 2020. This directly corresponds to monetary saving of INR 30,000 crores (USD 4.61 billion). This will result in a reduction of 1.3% - 1.5% of CO2 emissions. According to the NEMMP, there will be a creation of more than 180,000 jobs that will lead to the economic growth and a cleaner future.
Incentives/ Support While the NEMMP envisages investing around INR 22,000 crores (USD 3.38 billion) by a Government-Industry partnership, the Government shall invest close to INR 14,000 crores (USD 2.15 billion) and the automakers shall invest close to INR 8,000 crores (USD 1.23 billion). The complete utilization of those INR 22,000 crores will play a pivotal role in achieving the target. The NEMMP was announced in 2013 for increasing the penetration of EVs in the market and until recently, India has not witnessed any fund allocations. In April 2015, Union minister of Heavy Industries and Public Enterprises Anant Geete launched a scheme for Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (also known as FAME11). The first phase of the scheme (2015-17) has an outlay of INR 795 crores (USD 122.3 million) of which INR 260 crores (USD 40 million) is dedicated for the first fiscal year (201516). Although the General Budget, 2015-16 of India has
10 11
National Electric Mobility Mission Plan 2020, http://goo.gl/v0l4hm Faster Adoption and Manufacturing of Electric (& hybrid) vehicles in India, http://goo.gl/xjDCH8
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actually passed an initial outlay of only INR 75 crores (USD 11.5 million) with the release of FAME scheme 12.
Total 260
70
155
Technology Platform
Demand Incentive
10 Charging Infrastructure
20
5
Pilot Projects
IEC Operations
Figure 2: Allocation of FAME scheme (2015-16) in INR crore
12
General Budget, 2015-16, India, http://goo.gl/occK13
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Globally, the market share of EVs is negligible as compared to that of the ICEVs (only 0.08 %)13. The Achilles heel of EV technology is the battery technology, which is the main reason for its high cost. But battery costs have fallen by 40% during 2010 to 2012 14. This declining price of battery and a significant spending by Governments across the world (USD 16 billion during 2008-2014) has led to the significant uptake of EVs in last 5 years (2010-2014). Figure 3 shows the global (EVI countries) EV sales during 2010-2014.
Figure 3: Global EV sales [source: Global EV Outlook 2015] 15
Global EV Outlook 2015, http://goo.gl/M0oH54 40% drop in EV Battery Prices from 2010 to 2012, CleanTechnica, http://goo.gl/pgjXr7 15 BEV and PHEV respectively stands for Battery Electric Vehicle and Plug-in Hybrid Electric Vehicle. 13 14
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For the EVI (Electric Vehicles Initiative) member countries, their contribution in EV markets share or stocks is shown below. China 12.55%
Japan 16.32%
Rest of World 29.24%
India 0.41%
United States 41.49%
Figure 4: Global EV share (%)16
48
743
2,689
2,799
3,536
6,990
7,584
10,778
21,425
24,419
30,912
40,887
43,762
In the pie of ‘Rest of World’, there are a total of 13 countries, including India. Their EV Stocks are shown below.
Figure 5: Number of EV stocks16
Clearly, India is far behind in deploying the EVs and at this rate, it cannot meet with the targets of NEMMP. Therefore, the key question is “Why is the market for EV in India not taking off?”
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Global EV Outlook 2015, http://goo.gl/M0oH54
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The following table shows the manufacturers that are members in Society of Manufacturers of Electric Vehicles (SMEV)17: Manufacturer
2W18
3W
4W
Components
√
Mahindra Reva Lohia Auto Industries
√
√
Ampere Vehicles Pvt. Ltd.
√
√
Electrotherm
√
Hero Electric
√
Avon Cycles
√
Ajanta Manufacturing Division (e-bike division)
√
Sehgal Elmoto Ltd.
√
Tunwal Electronics
√
√
Fusion Power System
√
U.L. India Pvt. Ltd.
√
The NEMMP 2020 envisions creating a sustainable EV market for both consumers & manufacturers. But one of the main problems in the Indian EV car market is the presence of only one manufacturer. This creates a lack of competition in the market. With that said, the only manufacturer (Mahindra Reva) is set to compete in the highly cost competitive market of ICEVs. Eventually the only electric car with a low range as compared to an ICEV, fails to deliver owing to its high capital cost. Hence, rejection of EV over ICEV due to its high price from a consumer’s point of view and the lack of a sizeable market size from the manufacturer’s point of view is a problem similar to that of the economics’ classical problem of ‘two-sided market’. There are two possible solutions to this problem: 1. To create a long-term sustainable policy and incentive framework that creates a market for EVs.
17 18
Society of Manufacturers of Electric Vehicle (SMEV), http://goo.gl/EcKdKy 2W, 3W & 4W respectively means 2-wheelers, 3-wheelers & 4-wheelers
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2. Creating an aspirational product that can compete with the ICEVs, self-sustainingly in the automotive market. Currently what Mahindra Reva does is focuses on being more economical (even though it fails to do so – see chapter 3 – Financial Viability Analysis). It neither addresses the consumers who are looking for ‘Value for Money’ nor the consumers who are looking for performance. Therefore, the only people who currently are Mahindra’s customers, are people with the consciousness of either ‘being environmental friendly’ or ‘having cool technology’. Mahindra is positioning the car as an affordable EV but the stigma of driving such a car is a barrier for customers. While, India’s EV sector has complete focus on being economical, the rest of the world has focused on both economic viability (e.g. Nissan’s Leaf) and expensive but performance-driven vehicles (e.g. Tesla motors). Figure 6 shows the ‘value for money’ (as in range, performance, customer satisfaction, etc.) that consumers get for the price they pay for their car.
Figure 619
The ‘blue colored zone’ signifies the current market of ICEVs; right from the ultra-compact cars to luxury & sports cars 19
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Mahindra Reva by its classification, competes with the ‘small segment cars’ and is undervalued and overpriced for the same zone. What Indian manufactures should do, is target the ‘Niche Zone’ where they can deliver high value for money to their customers. Even though targeting this zone may seem as a desultory idea, it will create an impact on improving EV’s perspective in the country. Along with this, suitable policy interventions and demonstration projects can always help in developing markets for small and midsegment cars. With regards to the subsidies, the EV market in India has done well since the release of FAME subsidy. Compared to last year, there is a 25% increase in the sales of electric vehicles in the first quarter of 2015; although the total number of sales is just about 5,00020. Despite the FAME scheme, sales are not in line to meet NEMMP targets. The key question therefore is, why hasn’t the recent subsidy on EVs
kick-started the market?
20
Sales of Electric Vehicle show impressive growth: SMEV, DNA India, http://goo.gl/ujdu6R
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We have already seen how well the EVs have been performing globally. But what are the strategies that have been used to create the EV market across the globe? On the whole, the percentage share of investments for different domains like Fiscal Incentives, Infrastructure, Research Development & Demonstration (RD & D) is shown in Figure 7 and Figure 8.
Fiscal Incentives
RD & D
33%
34%
Fiscal Incentives 38%
RD & D 47%
Infrastructure 20%
Figure 7 Spending by EVI countries (2008-14)
Infrastucture 28%
Figure 8 Planned spending by India (As per FAME, 2015-17)
It seems that India has rightly allocated its share for fiscal incentives. But where does India stand as compared to the incentives allocated by different countries? The allocation of funds in incentives, infrastructure and Research, Development & Demonstration (RD & D) by different countries is shown in Figure 9.
India, 41
U.S., 268
France, 157
China, 1,120
U.S., 360
France, 56
Denmark, 10.5
India, 2,833
U.S., 7,500
Spain, 6,720
Japan, 8,200
China, 9,600
India, 33
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FISCAL IN CEN TIV ES
IN FRASTRUCTURE
RD & D (MILLION
(USD)
(MILLION USD)
USD)
Figure 9
Clearly, India lags behind in all areas - incentivizing, funding charging infrastructure and demonstrating projects. But this is not the end of the road for electric vehicles in India. Wellconceptualized projects can really turn the markets. India can take lessons from the strategies that have successfully made an impact globally.
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To understand if an EV is financially viable, it must be compared to an ICEV in the same segment, which offers similar features/ values to its customer. The EV and ICEV are selected upon their mode of operation i.e. fully battery operated vehicle and the petrol-variant model of ICEV. Therefore, the natural choice of EV and ICEV respectively comes down to Mahindra Reva e2o (the only EV car manufactured in India) and Tata Nano Twist XT (the ICEV car in the same segment) based on the following significant similarities: Manufacturer
Indian
Car type
Hatchback A1 (based on Society of Indian Automobile
Segment
Manufacturer’s (SIAM) classification of length less than 3400 mm)
Seating capacity
4 Air conditioner, central locking, CD player, power
Key features
steering, power windows
Airbag & traction control
No
INR (Lakh)
Assuming that an urban consumer is likely to replace a car after 5 years, the comparison done here is for the time period of 5 years or 50,000 kms. Note that the capital investment for the e2o (INR 6.23 lakh (USD 9,584)) is after accounting for the subsidy of INR 124,000 (USD 1,907) under the FAME scheme (16.6% of the capital cost excluding battery cost). 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 -
INR 3.7 lakh (USD 5,692)
Mahindra e2o Battery Cost
Maintenance cost
Tata Nano Fuel cost
Capital Investment
Figure 10: Total Cost of Ownership (5 years or 50,000 km)
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Key takeaways from the comparison: 1. The capital cost to be invested in e2o is more than twice (precisely 2.20 times) the amount to be invested in Nano. 2. The fuel cost of the e2o is 6 times less than the fuel cost in Nano. (Note that petrol price is assumed as INR 60/litre and electricity price is assumed as INR 4/kWh). 3. The fuel economy of Tata Nano being in km/l (20 km/l) and that of e2o being in km/kWh (8 km/kWh), it is difficult to pinpoint the better one in terms of mileage. Thus, as a common measure for mileage, it is expressed as the average distance travelled per unit of energy consumed. The equivalent mileage in km/l for the Mahindra e2o is 3.5 times that of the Tata Nano. This means that on the course of 5 years, an e2o will help save us around 6 tonnes of CO2 emissions if charged from a completely decarbonized grid structure or 1.8 tonnes of CO2 emissions if charged from the current grid structure of India that has 70% of energy being generated from thermal power plants 21. 4. The ‘per km cost of ownership’ over 5 years for the e2o is 1.53 times that of the Nano. If 34% of the cost of BEV is waived as opposed to the current 16.6% one might be inclined to make a choice to buy an e2o over Nano (see chapter 4 – Recommendations & way forward on how this can be done). BEV manufactured in India comes with an additional tax benefit of accelerated depreciation. While depreciation rate on an ICEV is just 15% per year, a BEV comes with the Accelerated Depreciation (AD) rate of 80%. Figure 8 shows the incorporation of tax benefits from AD. These tax savings bring down the net amount invested (shown here as the net cost of ownership) in owning the EV over the span of 5 years. Despite the tax benefit from AD and the subsidy by FAME, the cost of ownership of e2o remains 1.53 times more than that of Nano and requires an additional investment of INR 2.27 lakh (USD 3,492). This extra investment explains the slow market growth of EV. If Government really wants to adhere to the targets of NEMMP, then there must be additional benefits such as
21
Energy Statistics 2015, Central Statistics Office, Government of India, http://goo.gl/E8uGZw
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subsidies or waivers on taxes. A good option to promote EVs in India would be for the State Government to offer additional subsidies by waiving off the VAT and registration tax on electric vehicles. This forms up to 16% of the total cost of an EV as of today. Figure 10 shows that inclusion of additional tax benefits like VAT (Central VAT & State VAT) and registration tax brings down the net investment close enough to an ICEV level. The Government must not forget that the goal remains to bring down the investment of BEV to an ICEV level, so that the EV market remains selfsustaining. 9.00 8.00
Depreciation Benefits
7.00
VAT
INR (Lakh)
6.00
Registration Tax
5.00
4.00
Net cost of
3.00
ownership (includes (includes tax tax
Depreciation Benefits
2.00 1.00
-
Mahindra e2o
Figure 11: Net Cost of Ownership (5 years)
Tata Nano
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Announcing and implementing the FAME scheme is just half the journey in making India a vibrant EV market. The key challenges that remain are: 1. A negligible charging infrastructure : The lack of charging infrastructure creates the environment of inconvenience in the public for adoption of EVs. 2. Lack of awareness: There is a lack of awareness in the public about the advantages of electric vehicles. 3. Lack of manufactures : The lack of EV manufacturers in India (especially in 4-wheeler segment) is one of the major reason for the slow market growth of electric transportation. Moreover, the FAME scheme qualifies only Indian EV manufacturers as the beneficiary for incentives. It seems as the Government is enthusiastic to release the subsidy schemes, but its scarce involvement in EV-boostingprojects has left with an impression of low esteem for electric automation in the market. To reverse this situation, we recommend the Government to look forward in the following programs/ development/ projects. 1. Long-term policy clarity: The NEMMP does envisage establishing a vibrant EV market in India but lacks on the information of how that will be done! The first step for the Government of India is to come up with a policy that states the long-term targets for electric vehicles and lays down the pathway for how that shall be done. 2. Subsidy is essential: The subsidy under FAME is clearly not enough to incentivize potential car owner to opt for EV. At least until the EV market matures, the State Governments should complement the Central Government’s efforts to deploy EVs by waiving off the VAT and registration tax levied on an EV purchase. 3. Battery Swapping: With lack of charging infrastructure, battery swap might just be more convenient for the EV adopters. A battery swap program in a city/ state can eventually result in the development of the proper charging infrastructure for the EVs.
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4. Car Sharing: The best perk of car-sharing is that customers need not invest in the currently high priced EV. Instead they can rent out the EVs. Such projects not only facilitate employment (drivers) but also bring economic and environmental benefits (reduces congestion) to the country. A pilot project on electric car sharing is definitely worth looking into. Perhaps, Ola and Uber can deploy EV fleets to capture small distance commute & acquire a ‘green’ status symbol or the government can enforce Ola or Uber to have a fair share of electric vehicles in their fleet. As a matter of fact, ferrying the employees in electric-cabs (service like Lithium, Bengaluru) can save millions of dollar 22. 5. Electric Buses: With a large and dense population in Urban India, it is seen that mass transit system works very well. Electric Buses have been the talk-of-the-day since long now and the potential development they have shown in countries like China and Australia is unprecedented. Adding to the advantages, China has successfully unveiled the fastest charging stations for electric bus 23; with less than 10 seconds of charging time. ABB also demonstrated similar development24 that takes around 15 seconds to charge an electric bus on the go. Imagine such e-Buses running in the routes of Bus Rapid Transit System (BRTS); most of the infrastructure being already there, this can be put in action relatively faster than other projects in India where a BRTS infrastructure is already up and running. 6. Creating motivation/ competition for the performanceoriented market: Tesla motors Inc., U.S. has proved a simple yet powerful fact that electric vehicles can perform better than the conventionally powered combustion engine vehicles. This has resulted in creating a performanceoriented awareness promoting the electric automotive industry in the U.S. and other countries. But such awareness campaigns have to be organized for the Indian market too. Government can do it either by awareness campaigns or organizing some competitions. In parallel to this, manufacturers can take up an initiative to step into the
Electric-cab service Lithium to begin operations in Bengaluru next month, Economic Times, http://goo.gl/4g1edA 23 World’s fastest charging electric bus takes 10 seconds to charge, Electric Vehicle News, http://goo.gl/rrVaMJ 24 ABB unveils ultrafast 15-sec “flash charging” electric bus, CleanTechnica, http://goo.gl/5TCcNA 22
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performance-oriented market and see if they can perform better than what they are doing right now. At the end of the day, the design output of the electric vehicle will decide its own market.
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Gujarat Energy Research & Management Institute (GERMI) is a center of excellence in industry learning and has set up to develop human resource assets to cater to the petroleum and allied energy sectors, improve knowledge base of policy makers and technologists and provide a competitive edge to leaders to compete in the global arena.
Ankit Bhatt is a senior project fellow at GERMI, post graduated in solar energy from Pandit Deendayal Petroleum University. He is currently carrying out his research on electric vehicles and renewable energy policies. He can be reached at
[email protected]
Akhilesh Magal is the Head Advisor – Solar Energy at GERMI, an institute dedicated to research in the fields of, solar energy, energy efficiency, environment and petroleum research. He is an environment engineer from Carnegie Mellon University and is an expert on solar policies and grid integration of renewable energy. He can be reached at
[email protected]
