How electric vehicles are faring globally and the road ahead for India

Last year was a definitive one for electric vehicles, not just in India, but also on a global level. Although companies like Tesla had started nibbling away at market share in the US and Europe almost a decade ago, most indicators point to the global EV market having come of age in 2021.

About 130,000 EVs were sold every week in 2021, according to a report by the International Energy Agency, a Paris-based intergovernmental organisation established to facilitate economic cooperation. That compares with 130,000 EVs sold worldwide in 2012.

Global trends show that even after the car market worldwide contracted, EV sales grew in 2021, including in India, where sales increased 168 percent to 329,190 EVs. China led with sales of 3.4 million EV units in 2021 alone, achieving 20 percent market penetration in December, according to the IEA.

China intends to achieve market penetration of 20 percent annually by 2025 and appears to be the closest to this goal compared with the US and Europe. In the developing markets of India and Brazil, market penetration remains at 1 percent. India has targeted 30 percent market penetration by 2030.

Even Europe couldn’t match China, having collectively sold 2.3 million EVs – half of which were plug-in hybrids, a category that is conspicuously absent in India. Electric car sales shot up 70 percent in Europe and accounted for 17 percent of total car sales. The US trailed, with EVs occupying a 4.5 percent market share, having sold half a million units.

Despite the uptick in EV sales globally, the pace of adoption remains glacially slow. According to the IEA, China, Europe and the US accounted for two-thirds of the global EV market but 90 percent of global sales. Despite this, India saw the biggest bump in terms of the percentage of EVs sold in 2021.

The growth of the EV sector in India towards the end of the year – more than tripling in October – followed a worldwide pattern. In December, EV sales were as much as two-and-a-half times higher in the top three markets than at the beginning of the year. In Europe, EVs surpassed sales of diesel vehicles for the first time in December.

What factors led to 2021 being the year of EVs – among other things – and do the conditions in India differ from those that have precipitated sales worldwide?

Favourable policies

The introduction of subsidy schemes like the FAME II (Faster Adoption and Manufacturing of Electric Vehicles in India Phase II) policy, along with incentives provided by states were among the main factors for the EV breakthrough in India.

According to the IEA, China scaled back subsidies by 10 percent in 2021 as EV demand became self-sustaining. The IEA observed that China would cut subsidies further by 30 percent in 2022 and this may have played a role in expediting EV purchases in the country in 2021.

Emission norms

The jump from BS IV to BS VI emission norms in India played a role, leading to considerable price increases for internal combustion engine (ICE) vehicles, especially diesel vehicles, with the price gap between the two widening to as much as Rs 2.5 lakh. Stricter carbon dioxide emission norms caused EV sales to rise in Europe as well and the upcoming Euro 7 norms are likely to be the final nail in the internal combustion coffin.

In the US, federal incentives offered in the past were not renewed, but EV buyers continue to benefit from tax incentives, much like they do in India, even in the high-end bracket, having been exempted from paying road tax or a registration fee.

New EV models

National deadlines for phasing out ICE vehicles led to the emergence of a very different automotive ecosystem, with many new companies looking to dominate the EV space. Most incumbents are phasing out ICE models and have set deadlines to be free of internal combustion engines in most markets.

India will likely be the last bastion for several legacy carmakers when internal combustion cars will be banned in most major markets by 2030.

Supply chain woes

EV sales will only increase, with 1 million units forecast to be sold in India in 2022. It’s not surprising that the Union Budget paid heed to the needs of the electric three-wheeler segment, which will benefit the most from a standardised battery-swapping system, functioning like the LPG cylinder sales model.

There’s no option for private cars to swap batteries, in part because battery management technology is a closely guarded secret and any interoperability standard would only work to a manufacturer’s detriment.

The chief problem most entities will face is a shortage of not just semiconductors, which can be made in greater numbers eventually, but of battery materials such as lithium and cobalt. Any expansion of the battery industry will only put a greater strain on the material supply chain, the IEA said.

With all nations clamouring for a limited resource, much like they did with fossil fuel, the need for a sustainable model for growth of the EV industry is larger than ever.

Circular economy

Most manufacturers agree that the only way electric mobility can be sustained is by establishing a circular economy that depends on extensive recycling of EV battery components, a large chunk of which can be repurposed. According to the National Renewable Energy Laboratory of the US Department of Energy, there are as many reasons for the success of battery recycling as there are for it not working.

While a circular economy can reduce costs, offer tax benefits and even add revenue streams, at present there is no standardised process to reuse or recover battery material. Nor is there a policy framework to regulate the mining of lithium, cobalt and aluminium or the process of recycling them. Laws regulating hazardous waste management also need to be put in place.

Supply chain issues that are beginning to affect the EV industry are no longer a dark secret.

India’s total reliance on imports for battery materials and other EV components will remain an impediment in growth. Even with incentives to support local manufacturing, it’s only through a robust recycling ecosystem, along with renewable energy storage reserves, that the EV model can prove to be sustainable.