At the COP26 climate summit in Glasgow recently, Prime Minister Narendra Modi told the world that India will expand its renewable energy capacity to 500 GW by 2030, accounting for half its total energy consumption. An integral part of this ambitious plan is to wean the nation away from diesel and petrol automobiles to electric vehicles (EVs) or hybrids.
A study by New Delhi-based CEEW Centre for Energy Finance (CEEW-CEF) said that if India meets its 2030 green energy target, it will develop a $206 billion EV market in nine years. The Centre and State governments have been developing the required policies — in terms of levies, incentives for manufacturers and building a recharging infrastructure that could ultimately make or break the industry.
Even as the EV industry hurtles forward at breakneck speed, some trends are becoming evident. Here’s a look at some of them.
1. It’s nascent now, but the future holds promise
The country is currently at the cusp of an e-mobility revolution. While by no yardstick it is a global frontrunner in promoting and developing an e-mobility ecosystem, a range of compelling reasons make this shift seem inevitable.
At present, the EV market may be just a fraction of India’s overall automobile market, but the sheer size of the population, and its transport needs, hold promise. India was the world’s fifth largest auto market in 2020, selling nearly 3.5 million passenger and commercial vehicles, said a report by India Brand Equity Foundation. Once the initial hiccups are overcome and EVs enter the mainstream, their growth is likely to match that of the overall auto market.
This financial year, EV sales have been on the rise since April, and are reported to be nearing last fiscal’s total sales already. Even if India’s EV market size is $152.21 billion by 2030 — by conservative estimates — it would present a CAGR of 94.4% from 2021 to 2030.
2. Investors could be looking at rich returns
A CAGR of 94.4% means an investor who puts money in the EV sector can expect to make about 750x returns over 10 years, thanks to the power of compounding. This, of course, is purely from an empirical viewpoint — in actual terms, the growth may turn out to be far more rapid, or slower.
While the current boom in the stock prices of American EV makers Tesla and Rivian is hardly replicable, EV-related stocks could be in for a bullish phase in India. As the industry expands, they are likely to be categorised as ‘growth stocks’ — businesses that increase both their revenues and earnings at a faster rate than the average or ‘median’ business in their segment or the market as a whole. Investing in growth stocks can be a life-changing wealth opportunity for retail investors, say wealth managers.
The key, of course, is to know which growth stocks to buy — and when. Growth investing is not just about picking stocks that are going up. Often, a company is considered in the ‘growth zone’ as it has developed an innovative product or service that is gaining share in existing markets, entering new markets, or even creating entirely new industries. Businesses that can grow faster than average for long periods tend to be rewarded by the market. And, the faster they grow, the higher the returns can be.
Unlike value-driven investment, high-growth stocks tend to be more expensive than the average stock in terms of metrics like price-to-earnings, price-to-sales, and price-to-free-cash-flow ratios. But the idea is that despite the premium price tags, the best growth stocks can still deliver lifetime wealth-creating returns to investors.
3. The economy will gain, and the policymakers realise this
For fuel-imports-dependent India, a shift to EVs could be a huge foreign exchange saver. Even if the country continues to import battery cells for electric cars, it is a cheaper proposition than importing oil.
The import burden per ICE (internal combustion engine — the mechanism in traditional vehicles), car is 4.1 times higher for private vehicles and 5.7 times higher for commercial vehicles compared to the import burden of an electric car over its lifetime, considering oil and cell imports, respectively.
This could be a major impetus for the government to push EVs. In September 2021, the Centre introduced a Production-Linked Incentive Scheme (PLIS) for the automotive sector to boost the manufacture of EVs and hydrogen fuel cell vehicles. The States are at it, too. Delhi, Maharashtra, Andhra Pradesh, Bihar, Chandigarh, Haryana, Karnataka, Kerala, Madhya Pradesh, Odisha, Meghalaya, Punjab, Tamil Nadu, Telangana, Uttar Pradesh and Uttarakhand have rolled out their individual EV policies.
However, some are yet to implement the policy. Early implementation of State-level policy could create a larger EV ecosystem in the country and help the industry to grow at a much faster pace, it is observed.
Where the State governments can make a major difference is in bringing out policy focused on demand generation for the initial period — this will help get more volumes on the road.
4. The pollution numbers are bound to drive the sector
COP26 promises apart, India ranks low on various pollution rankings, and that could be reason enough for it to put e-mobility on the fast-track. In the Environmental Pollution Index (EPI) 2020, India was ranked 168 out of 180 in terms of air quality.
The nation’s cities are among the most polluted in the world. In 2020, Indian cities — from Ghaziabad to Noida to Delhi to Faridabad — accounted for 13 of the 15 most polluted in the world, per IQAir data. Switching to EVs to bring down vehicular emissions is seen as one of the most effective ways to bring down the pollution levels, apart from measures such as better effluent treatment and ending stubble burning.
It can also address the issue of noise pollution, as EVs make less noise than traditional vehicles.
5. The cost saving doesn’t come from just avoiding fuel bills
EVs are 3-5 times more efficient than ICE vehicles in utilising energy. So, this saving is in addition to the savings from not buying fossil fuels. It increases multi-fold when the electricity used to charge EVs is sourced from renewable sources. Experts say that total CO2 emissions per electric car will be 8-24% lower by 2030, depending on renewable energy penetration in the grid.
Even if EVs run on electricity produced from fossil fuels, their overall efficiency is still higher and the pollution is less. This is because large thermal power plants are far more efficient than IC engines, and it is easier to control emissions from power plants than individual vehicle engines.
EVs also save energy by regenerative braking. Around 30-70% of the energy used for propulsion can be recovered, with higher percentages applicable to stop-and-go city driving. Plus, through smart charging, EVs can help maintain the balance-supply variations in the electricity grid, and provide a buffer against electricity supply failures.
Further, EVs have fewer moving parts than ICE vehicles, and are hence easier to maintain. They also deliver high torque at low speeds, and deliver much better performance while starting off and on slopes.
6. Public transport is likely to lead the EV pack
While sleek models of electric cars grab the headlines, it is the public transport segment that is seen to lead India’s EV industry, going forward. With a keen eye on e-mobility targets, State governments are expected to invest in electric buses for public transport.
For intra-city transport, in particular, e-buses may be a highly viable option, since they can be recharged at the take-off and destination points. State-run transport bodies can also invest in battery swap set-ups more easily.
This segment is already taking off. Earlier this month, the Bengaluru Metropolitan Transport Corporation (BMTC) signed up Switch, the e-mobility arm of Ashok Leyland, for the supply and operation of 300 12-metre e-buses. Under the deal, Switch will supply the fleet and charging infrastructure, and operate and maintain them for 12 years.
7. The EV financing sphere is set for frenzied action
One EV-related space that is likely to see heightened activity over the next decade is financing. At present, the country lacks a robust bank finance mechanism for EVs. Just a few lenders, such as State Bank of India and Axis Bank, offer EV loans, on select models.
Easy, cheap financing may be critical to take EVs to non-tier 1 cities and rural pockets. Tapping into the opportunity are non-banking finance corporations (NBFCs), particularly in the electric two-wheeler space. For instance, Shriram City Union Finance has tied up with Ola Electric, which is rolling out e-scooters from a massive manufacturing plant in Tamil Nadu. Similarly, Hero Electric has tied up with two-wheeler life cycle management firm Wheels EMI.
When it comes to rural sales, there are two key issues. If the EV stop running, repair takes time in the current scenario, and this impacts the buyer’s EMI payment capability. Similarly, the lack of a robust resale market for EVs also hampers their financing prospects. Once such issues are ironed out, EV financing is likely to become a booming market.
8. The auto ancillary industry could be in for tough times
There is concern and uncertainty currently on how the shift to EVs will impact the existing automotive value chain ecosystem, particularly the components sector and the jobs it accounts for. The industry already has already witnessed a continuous decline in sales over the last few years.
Industry experts fear that the transition to EVs will hit the ancillary industries harder. Fewer components are required in an EV powertrain as compared to that of an ICE, and this will lead to a loss in value addition in powertrain manufacturing. Further, if the current scenario of limited indigenisation continues, most high-value EV components will be imported. Existing parts makers who wish to move into EV components will be needed to undertake a massive overhaul of operations to survive.