Last Updated: February 2020 by Narasimhan Santhanam
This post is a part of EV Next’s EV Perspectives.
EV Next, a division of EAI, is a leading market intelligence & strategic consulting firm for the Indian e-mobility sector.
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The first and perhaps the most importation dimension of the strategy is Time. This is so because all the key challenges to EV growth are expected to be mitigated to a large extent by 2025. This fact alone implies that any strategy that is being designed today should be designed largely with the 2018-2025 period in mind. As one can guess, the growth strategy post 2025 will need to be quite different – for it is likely to be in an environment where EVs have reached cost and performance parity with conventional vehicles.
Strategizing for 2018-2025
During this period, on the one hand, there are significant challenges and constraints to be overcome before the market needs and aspirations for EVs can be met. Based on our analysis, most of these challenges will need a 6-8 year timeframe before they can be mostly or fully overcome.
On the other hand, there are avenues available to overcome some of these challenges in the short and medium terms, though each avenue has its own characteristics and timelines, and hence needs to be pursued in a selective manner.
Push & Pull
In order to answer this question, before even we look at electric vehicles, we first need to appreciate the “country characteristics”. The clues to an optimal strategy for electric vehicles lies as much in the country, as in the electric vehicles themselves!
As a country, India is neither China (authoritarian) nor any of the highly developed countries (wealthy). We are a democratic, developing nation. This characteristic has significant implications for the EV growth strategy. Markets can grow through sheer market forces alone – the needs and desires inherent in these market forces can create sufficient enough PULL for vigorous growth. Markets also grow through an external PUSH (government mandates, incentives) that facilitates end users to increase consumption, leading to growth.
For a product such as electric vehicles, a country such as China with an authoritarian structure can rely on PUSH. Developed countries can rely significantly on PULL, with their populations having both the aspirations and the wealth to afford high-cost electric vehicles – though in fact, even these countries have required significant PUSH for EV growth in the recent past!
India’s country characteristic implies that any growth strategy needs to incorporate both the PULL and PUSH drivers. A strategy that aligns external incentives with fundamental market forces to create a “resonance” is what is needed to create a boom in the electric vehicle sector.
So, how indeed does one start design a growth strategy that balances the PUSH and the PULL?
A good way would be to understand the PULL dimension quite well, and design the PUSH and other components of the strategy such that they leverage the PULL. Put differently, when pressure is applied to something that already has good attraction and little resistance, things move much faster.
In our decade long work in the clean energy sector, our consulting team at EAI has observed many times how the prevailing government’s policies and incentives are designed and implemented independently, without appreciating how well aligned these are to the market forces.
Governments, in India and elsewhere, are quite good at designing strategies dominated by policies and incentives, as these are what they understand quite well. The same governments are usually poor in understanding markets and appreciating the needs and drivers.
Revisiting the PULL + PUSH formula we mentioned at the beginning, this translates to utilizing the avenues such that these are aligned to segments that have the least challenges to market growth.
For instance, just providing subsidies is not a feasible avenue to drive growth across all products and markets. Firstly, there are limits to how much financial incentives the government can provide – India is not China, and has checks and balances on how much freedom the government has for financial incentives. Next, lowering the cost of the vehicle alone will not solve other unmet needs for some product-market segments – for vehicles such as cars and trucks for instance, performance specifically on range and charging time are critical pain points. These two to a large extent rely on technical progress that does not get addressed by financial incentives. At the same time, the same subsidies can be an effective growth driver if provided to the right segment where the range and charging time challenges are less critical – the electric scooter and electric three wheeler segments, for instance.
With the above perspectives in mind, the following are what we are recommending as dimensions of an effective EV strategy for India, for the period 2018 – 2025. We suggest that an effective strategy will need to be designed around focus on four dimensions – Product, Geography, Technology and Infrastructure.
The Product/Market Dimension
Based on an analyses of the needs and challenges and the gaps thereof, products that have the potential to see reasonable growth on their own during the period 2018-2025 are Electric Scooters, Electric 3 Wheelers (including 3-wheeled small commercial trucks) and Electric Buses.
We provide reasons for the above inference:
- Scooters – With the average daily distance travelled by scooters well within the available ranges, with electric scooter prices for many models with lead acid batteries ranging from Rs. 40,000 to 70,000, and with the possibility to get charging done overnight at homes without much discomfort, the technology challenges for this product/market are only moderate, making adoption for this segment much easier than for other consumer segments such as cars.
- 3 Wheelers – 3 wheelers have a business case that is somewhat similar to that for scooters; for this market segment however, electrified versions have an added attraction – lower running costs. For commercial 3 wheelers (especially passenger autorickshaws), lower running cost can be a big draw. The range at full charge is only about half of what conventional autorickshaws with full tanks give (100 Km vs 200 Km), and speed too is only half that of conventional autorickshaws (25 Kph vs 60 Kph). Given the short distances they cover for each trip and the congested urban roads they ply, these ranges and speeds might not be such serious constraints. Their prices (with lead acid batteries) are only somewhat higher than those of conventional autorickshaws. This segment hence can be said to already have some extent of PULL.
- Mini, Local Commercial Trucks – These have characteristics similar to their passenger counterparts (autorickshaws).
- Local Public Buses and Corporate Bus Fleets – Electric buses also present an interesting business case. Electric buses today have a range of about 130-150 Kms, and a speed of about 100 Km/hour. While these might not be attractive to long distance buses, these could be acceptable for local city buses, which perhaps run only that much distance every day, and at speeds that are well under 100 Km/hour at any point in time. The real challenge for electric buses for this market segment is their very high cost. For instance, electric buses equivalent of the luxury Volvo buses could cost 2-4 times as high as their conventional equivalents. This could mean a cost of over Rs 1.5 crores for a high quality electric bus while the conventional bus could cost about Rs. 70 lakhs. One way to mitigate this challenge is to deploy the OPEX or Lease models for these buses – this way, there’s no upfront price for the vehicle and the transport company only pays for the amount of distance travelled. Companies such as Ashok Leyland are reported to be considering such an “Electric Bus as a Service” business model.
The above product segments are the ones that will matter during the 2018-2025 phase, according to our analysis. Two other visible product segments in the EV category are electric bicycles and electric cars. The following are our take for these segments:
- Bicycles – At the current high prices for electric bicycles, they have a business case only for the premium and super premium market. Even lead acid battery based bicycles cost in the Rs 15000-20000 bracket while Li-ion based bicycles cost a lot more. We see significant growth in electric bicycles only in premium categories such as pedal assisted bicycles (Pedelecs) which are easy to ride, cool and incorporate the concept of health and wellness.
- Cars – While cars are the most visible segment of the electric vehicle sector, based on our analysis, they will sell the least in India during the 2018-2025 period, for there’s a significant mismatch between the market needs and what the current products can currently provide. Many electric cars from international companies such as Tesla, Toyota (hybrids) and BMW cost upwards of Rs 40 lakhs, and hence are applicable only to the super premium end user segments in India. While Tata and Mahindra do sell electric cars in the Rs 8 lac – Rs 12 lac range, we feel this mid-range segment might not buy in significant quantities owing to the relatively low range and long charging time challenges. As a result, until about 2025, electric cars in India will be purchased for novelty value, whether it is by mid-range or premium segments. The one dynamic that can to a certain extent make mid-range segment buy significantly higher numbers is if hybrid electric cars are sold at the mid-range segment price range.
A review of the highlights and inferences in the Product-Market dimension shows that the electric vehicles that have highest growth potential during the 2018-2025 phase – scooters, 3 wheelers and local buses – will be used predominantly within large urban areas. With this, the Geography Dimension is easy to work out.
- During the 2018-2025, the geographical focus should be on large urban areas and intra-city infrastructure creation.
- In terms of action, this implies
- Focus on sales and service networks in the top 10 cities for the 3 EV types mentioned earlier.
- Significant focus on setting up both normal and fast DC charging infrastructure at various strategic locations in these top 10 cities – theaters & malls, metro stations, parking lots etc.
- The above analysis also implies that investments in charging stations on inter-city highways will not be optimal during this phase. It will be almost impossible during this phase to attain critical mass for the number of electric vehicles using these charging stations on such highways. This will lead to high unit cost of operations and poor returns for these stations.
India does not have any manufacturing in the upstream part of the Li-ion battery value chain – domestic activity starts only from the battery module assembly stage. In the case of EV charging stations too, the core battery and charging technology (especially for DC fast charging) used in these stations are currently imported. However, components such as the powertrain – motors especially – have significant indigenous manufacturing base and skillsets. Given these, what are our recommendations on strategy for the technology dimension?
- India should consolidate its position in making EV components in domains that it has current strengths – be they the non-engine auto components in which the country is a leader, the motor and the powertrain components.
- On charging technology, India can make rapid strides in chargers and charge controllers during the 2018-2025 phase. The country already has an excellent set of companies providing charging solutions for the power sector. This sector can hence upgrade itself fairly quickly to provide industry strength solutions to the EV sector.
- Battery Management Systems is another sector where the country’s skills in charging technology and information technology can be put to good use during the 2018-2025 phase.
- The industry will however do well to adopt a Wait and Watch approach on investments into core battery cell making until 2025. The reasons are as follows:
- The core Li-ion battery cell is a high-end research and development domain in which India has little domestic expertise currently. There are no Indian companies operating in the upstream segment today, making Li-ion battery cells – the Indian Li-ion value addition starts only from the cell assembly stage.
- The core battery technology domain itself is undergoing significant churn, with variants emerging from within the Li-ion category, and completely new technologies such as solid state batteries also beginning to show promise.
- Finally, there’s also the Fuel Cell technology to contend with – while fuel cells have delivered little in the past decade, the next ten years could be the decisive period for this technology to either start flourishing or become irrelevant.
- With such uncertainties and with giga factories for Li-ion batteries being set up in North America, Europe, China and elsewhere (which will have significant economies of scale advantage), significant investments into core Li-ion battery making in India during this phase might not be the appropriate strategy. While some pilot and learning investments could be made into Li-ion battery making, a Wait and Watch approach will be the most appropriate for India during this phase.
The key infrastructure requirement for electric vehicles is the charging station infrastructure.
As mentioned earlier, two key strategies can be adopted during this phase for EV charging stations:
- Focus on large cities alone – Significant growth in EVs is expected mainly from two wheelers (scooters), three wheelers (both commercial and passenger) and intra city buses. All these product categories ply mostly within city limits. Thus, focusing on setting EV charging infrastructure in the top 10 cities in the country could be the optimal way to go. Not only will these have a critical mass of vehicles to use, maintenance of these will be easy within city limits, and feedback from users and corrective actions could be easy too. The learnings from the top 10 cities during this phase can be used to build a comprehensive infrastructure during the subsequent phase.
- Focus on swapping stations for vehicles such as buses – As mentioned earlier, the battery swapping station business model can significantly lower charging time. While setting up battery swapping stations has its own intricacies and challenges (mainly from logistics and inter-operability perspectives), swapping stations within the city limits for specific vehicle categories such as buses could be an optimal strategy for this phase.
Strategy Recommendation – Summary & Analyses
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- Strategy for Indian Electric Vehicle Growth – Product, Tech, Infra Strategies for EV Market
- Key Indian Battery Makers Plans for EVs – Exide, Amara Raja, HBL, Eveready Strategy for Electric Vehicle Batteries
- Indian Electric Vehicle Market Entry Strategy – Recommendations for Different Types of Investors
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