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Why were sales of electric two- and three-wheelers without batteries allowed, will buyers benefit and other questions answered

Batteries account for up to 40 percent of the EV cost. So, the price of an EV with battery deters it from becoming a mass product. Allowing registration of EVs without batteries will be a game changer, believes the govt.

August 13, 2020 / 07:42 PM IST

Sales of electric vehicles (EVs) are not gaining steam in the country, despite launching two incentive schemes in five years.

In FY20, 152,000 electric two-wheelers were sold in India, which was less than 1 percent of the 17.5 million sold during the same year, globally.

That scenario could now change with the government, on August 12, bringing about a landmark change to the buying structure of an electric two- and three-wheeler.

Moneycontrol brings you the likely impact of the new government policy on EVs.

What is the change brought about by the government?

The government has allowed the registration of electric two- and three-wheelers without batteries. It has written to the transport commissioners and the transport departments of states and Union Territories to allow the registrations.

Why has this been done?

Batteries account for up to 40 percent of the EV cost. So, the price of an EV with battery deters it from becoming a mass product. The government believes if the cost of batteries is removed from the price equation, it would bring down the acquisition price of EVs and trigger demand.

Who will provide the batteries then?

The government’s move can give birth to a new tier in the supply chain of electric vehicles. Third party vendors focussing only on supplying batteries could gain prominence. Batteries can be given on hire or sold as per choice. Battery, as an asset, will be on the books of the vendor. It will also become easier for the government to source end-of-life batteries from a common place for disposal.

How can buyers benefit?

Battery contains the fuel for an electric vehicle. Consumers will now have a choice -- whether to buy a battery-fitted vehicle or not. If the cost of batteries is separated from the EV, its price could decline by 30-40 percent.

Interestingly, in 2018, in the swappable battery technology developed by Ashok Leyland and Sun Mobility for electric buses, batteries were not part of the acquisition cost. This made the price much lower than other electric buses. However, their proposal never got the go-ahead from the government.

How will it affect manufacturers?

China is the world’s biggest manufacturer of EV batteries. Given the geo-political friction between India and China, India cannot afford a disruption in supply of batteries, if the country has to achieve mass electric mobility. With the new policy, manufacturers will be freed from the hassle of procuring batteries, most of which are imported. Vehicle makers can focus on developing new technologies and products for the future.

Will this boost EV sales in India?

If the price of electric two and three-wheelers head south by 30-40 percent, it will bring their prices on par with petrol, diesel or CNG-powered vehicles, thereby boosting demand. For instance, India’s largest selling scooter, Honda Activa, is priced around Rs 80,000 (on-road) while the fully electric Ather 450 is priced around Rs 115,000, a premium of 44 percent.

Will this affect government subsidy?

Officially, the government has not provided any guidance or indication. Under the FAME 2 (Faster Adoption and Manufacturing of Electric and Hybrid Vehicles) scheme, the government provides a subsidy ranging from Rs 18,000 to Rs 68,000 for two and three-wheelers.

Are batteries for EVs sourced within India?

Most battery packs are sourced from outside India, mainly from China. Some vehicle makers such as Mahindra Electric have their own battery assembly units in India. However, lithium-ion cells, the heart of the battery pack, still comes from China. A few companies such as Suzuki and Toyota have committed to set up a full-fledged lithium battery producing plant in India, including cell manufacturing.

Swaraj Baggonkar
Swaraj Baggonkar
first published: Aug 13, 2020 03:40 pm