India is currently the fastest growing economy globally. It is in striking distance of being the third largest economy. Through the UJALA scheme implemented by the Government of India providing LED lamps at affordable prices, India is the largest market for LED lighting systems including bulbs, having a 12 percent global market share. India is in the forefront on various parameters and it is now aspiring to be in the elite group of the developed economies which are moving the scale on environmental issues.
Amongst various measures, India is planning / aspiring to be all electric on passenger vehicles by 2030. While the Scandinavian country of Norway has fired the first salvo of phasing out all vehicles diesel or petrol by 2025, the UK has announced that they would like not to sell vehicles run on fossil fuel by 2040 and so has France by 2040. Germany has also called to phase out petrol heads by 2030.
Recently, China has joined the race though they are miles ahead in terms of sales of electric cars recording highest volumes. This will be an expanding club especially with the countries committed to the Paris Climate Agreement joining this movement and sees the overwhelming need to move fast to bring about a drastic cut in the pollutants or the emissions.
Each of the countries in the race to ban diesel or petrol vehicles or to phase them out is following different approaches. Norway is planning to achieve their objectives through a green tax system. Green tax is in effect the environment tax and Norway has a long history of environment tax and the collections are believed to be close to 5 percent of the GDP. These taxes have positively contributed to effective utilisation of resources apart from reducing the influence of emissions, which is the stated objective.
While these kind of taxes gradually impact and transform the overall ecosystem, ban on vehicles or usage of substance in the future forcefully brings to a nought the existence of old systems and create new systems. UK approach has been both a support and push initiative to enforce the ban for fossil fuelled vehicles by 2040. They plan to allocate significant monies to encourage in the form of Plug in Grant and establishing charging stations in fuel pumps apart from levying charges for entry into clean air zones. A GBP 3 billion funding is estimated while encouraging local councils also to come up with local development plans.
Apart from the various governments the passenger car OEMs and some non-auto players have also strengthened their plans for electric vehicles. While Tesla, which is an energy storage solar panel company, is leading the race with unveiling of Model S, a premium electric vehicle a few years ago to also introducing a low priced high volume vehicle in Model 3 recently.
Volvo expects to have all its models to be EV or hybrid from 2019. Jaguar Land Rover has promised to have electric vehicle options across its different models from 2020 while it has not focused on EVs till recently. You name it, every other brand now has jumped into the bandwagon and/or is strengthening its presence from experimentation to serious development.
The government in India has mentioned that all passenger vehicles sold by 2030 will be electric vehicles. This is an intention to ban sale of vehicles which run on petrol or diesel. Recently, one of the ministers has gone to the extent of mentioning that car companies will be bulldozed into manufacturing electric vehicles. While the push effect is visible in words we are yet to hear the support which will come though we understand various policy measures are around the corner.
An amended FAME policy, it currently covers hybrid which seems to have gone out of favour with our government, is expected in a month or two, which will probably address many questions in our mind, namely how it intends to get the push to electric vehicles a reality. True to its intention baby steps have been taken with Nagpur Corporation kick-starting with a fleet of electric vehicles along with a leading mobility solutions player in the public transportation segment.
Government of India through EESL has put in motion its own set of initiatives of having electric fleet for its offices and officers by placing the first orders with Tatas and M&M. In the public transportation space eAutos and eRickshaws are planned to be introduced. India is one of the largest markets with natural gas fleet in public transportation. Electric buses will be seen in large numbers with the domestic OEM’s introducing them already in recent times.
While there are very few players in the four-wheeler segment from amongst the OEM’s in India every one of them understands the push from the government and are putting plans in place for electric passenger vehicles. We have quite a few players in the two-wheeler segment eagerly waiting for the market to expand. While it appears to be a tall task to go electric by 2030 one can assume with proper plan and initiatives we can make a significant progress. This vision to make all passenger vehicles electric is capable of disrupting the auto sector and gaining strength if the mission has all stakeholders in sync with each other addressing the obvious.
Pricing/ cost of ownership and demand can be a vicious cycle and can be a chicken and egg situation. Currently, electric cars are at a premium to fossil fuel cars and efforts are being made to have ones priced comparable to ICE cars with all the whistles and bells. For this to happen, demand will always be a confidence inducing factor. Demand again is dependent on whether EVs can provide the same level of comfort of using an ICE car, like the distance achieved on a single charge and how quick you can recharge or get a replacement battery to get going. Higher insurance will also be a dampener and dependent on demand and lower cost of production to keep it low.
Technology and infrastructure are essential to play a significant role in ease of use and gaining the confidence of vehicle owners to shift radically to EVs. With the countries pushing for EVs in a concerted and one track mind the OEM and new players are moving into rapid development of battery technology with a mission to come up with products in the next few years. The scorching pace set by them along with players setting up charging infrastructure will ensure significant developments and take care of the basic concerns of a discernible customer.
Energy generation or power sector will play a major role in the success of the mission towards all electric passenger cars. A clear demand assessment and project implementation plan has to be in place to be able to meet the incremental needs of energy. Power generation also has to be based on green tech so as to not to defeat the basic objective of moving to electric pollution. Battery disposal mechanism and the technology to treat e-waste should also be in place so that it does not add to a different dimension of pollution.
Whatever one may say it is clear that the intention to electrify the sector is serious and despite a very dynamic environment one wishes the momentum is not lost.(The Author is Partner, Grant Thornton India LLP)