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E-mobility: Why the Indian auto sector is reluctant to take the great leap

India’s 65-year-old auto industry is in a state of flux. As if the short-term challenge of a slowing demand wasn’t enough, the sector also faces an existential dilemma. The government’s electric mobility mission, which proposes to replace the internal-combustion engine (ICE)-powered three-wheelers and two-wheelers (up to 150cc) by 2023 and 2025, respectively, has sent shock waves across the industry.

Environmentalists hail the move but point out that the approach has to be holistic and must also focus on taking old polluting vehicles off the road. “Instead of seeing it (the move to replace ICE vehicles with EVs) as a ban, it should be construed as a step towards zero emission,” said Sumit Sharma, director, climate change at The Energy & Research Institute (TERI), adding that if the country doesn’t switch to EVs now, it would be locking the fleet for the next 10-15 years.

Sharma said culling smoke-spewing vehicles with older emission technologies should be intrinsic to the whole effort. “Both the things have to be done hand-in-hand. We have not done enough to retire older vehicles. There are very few scrappage centres in place. There is no mechanism for fleet modernisation and inspection and maintenance leave much to be desired,” he said.

Frequent shifts in the goalpost 

This isn't the first time automakers in India are being pushed to the wall on the issue of adopting a new regulation. In 2016, a diktat by the government to leapfrog from (Bharat Stage) BS-IV to BS-VI -- the most stringent of norms-- by April 1, 2020, had taken the industry by surprise as it was a first for the auto industry anywhere in the planet to skip an intermediary stage in a short span of three years. The move was prompted by alarming pollution levels in a country that is home to world’s most contaminated cities.

World over, it isn't uncommon for policy makers to drive changes in the auto sector through regulations. However, what differentiates India from the rest is the frequency with which the automakers have been at the collision course with the government. This time around, it is transition and the pace of adoption to EVs that has become the bone of contention.

The frequent shifts in the goalpost are sending out confusing signals to an industry in which investment cycles are long, says Rajeev Singh, partner and automotive sector leader at Deloitte. “It is tough for auto companies to make investment on multiple fronts without having clarity on a return on investment,” he says, referring to the transition from BS-IV to BS-VI, and now to EVs. The industry needs enough lead time to recover investments made in a particular technology before it moves on to the next. Automakers, their suppliers and oil marketing companies have pumped in an estimated Rs one trillion to meet BS-VI norms.

A lack of charging infrastructure and high costs of lithium-ion batteries weakens the case of rapid EV adoption in India, say automakers. Batteries make up close to 70 per cent of the cost of an EV. Manufacturers also argue that the so-called to well-to-wheel emission in an EV is yet another reason why policy makers in India need to have a phased approach to EVs. The bulk of the power generated in India is coal-based. Therefore, while EVs will curb tailpipe emission in cities, a carbon footprint elsewhere will defeat the very purpose of a switch to EVs. Hence, it makes sense to have a calibrated, planned rollout and go all out on EVs when the country is closer to its target of generating power from renewables.

TERI’s Sharma disagrees. He says, “When you burn coal at power stations to generate electricity, it is not done in an uncontrolled manner.” There are tailpipe emission devices attached to these power plants that can control particulate matter. It is easier to control emissions at power plants, which are located in sparsely populated areas than doing it in millions of tailpipes in cities where population is dense, he says . Moreover, the country does have a target of reducing dependence on coal and generating power through renewable forms of energy, such as thermal and solar.

Joining similar government-led initiatives in China and the European Union to push EVs, in her maiden budget speech last Friday, finance minister Nirmala Sitharaman announced income tax rebates of up to Rs 1.5 lakh on the interest paid on loans taken to buy electric vehicles, with a total exemption of Rs 2.5 lakh over the entire loan period.

The minister also announced customs duty exemption on lithium–ion cells, which will help lower the cost of batteries in India, as they are not produced locally. This comes on top of the Rs 10,000 crore outlay announced under the FAME-II (Faster adoption of manufacturing of electric and hybrid vehicles) scheme announced till 2023. The scheme has allocated Rs 1,000 crore for setting up charging infrastructure.

The case against the sudden rush

Neither China nor European Union have, however, proposed a ban on ICE vehicles even as they set a target of stipulated percentage of vehicles to be electric. Faced with uncertainty, some manufacturers such as Honda Motorcycle and Scooter India (HMSI), have put future investments in India on hold. While the company will continue to invest in new models, features and new technologies, production capacity would need to be reconsidered, Minoru Kato, President and CEO, HMSI had said last month. “Additional investment is under consideration, and will depend on the roadmap for the electric vehicles," he said.

Think-tank NITI Aayog’s proposal to replace the ICE-run two- and three-wheelers with electric versions has irked others too. Top officials at Hero MotoCorp, Bajaj Auto, TVS Motor Co believe the sudden rush to switch to EVs will not only disrupt the value chain and take a toll on jobs, but will also rob consumers of choice. They feel that instead of an outright ban on ICE-powered vehicles, the government can take a middle path to the e-mobility and start rolling out EVs in the most polluted cities.  

Vikram Janakiraman, partner and director at Boston Consulting Group (BCG), agrees. “Being aggressive on EVs is commendable, but it needs to be done in a calibrated manner.” According to him, clarity on two things is critical. What is the end-objective of electrification? It should mainly be urban pollution reduction. Hence the roadmap has to focus on addressing the top polluted cities rather than a complete ban on two- and three-wheelers, which is currently being considered. Secondly, the industry needs medium- to long-term policy stability and coordination among the related ministries and departments.

The involvement of multiple ministries—road transport and highways, heavy industries, new and renewable energy, petroleum and natural gas—and a lack of coordination among them has only added to the complexity.  In an instance of the left hand not knowing what right hand doing, in November 2018, the government allowed the three oil marketing companies (OMCs) - Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) to add 78,493 pumps to their existing combined retail network.

“If EVs have to come and dependence on petrol and diesel has to reduce, why is the government asking the PSUs to add more to the existing 68,000 petrol pumps? There is no coordination,” says Jagdish Khattar, former managing director at car market leader, Maruti Suzuki India, pointing at the fallacies in the whole approach to the EVs. According to Khattar, banning two- and three-wheelers in India, the world’s largest markets for such vehicles, is not right. He says, “Let buyers exercise a choice. Incentivise them to buy products that boast of world-class technology. Why ban?"

Shekar Viswanathan, vice chairman at Toyota Kirloskar Motor echoes similar views. According to him,a technology agnostic approach to clean mobility is the only way forward.This will ensure the customer is not robbed of a choice and the industry gets enough time to prepare for the transition.  

 
“The challenge that we have – both in India and globally, is to make EVs commercially viable. At Toyota, we can introduce 1000 vehicles and claim we have gone electric, but we don’t want to merely make demonstration exercises but make it a sustainable business model,” he said.  

Cars aren't the biggest devils

Vishwanathan points out that EVs would definitely help the cause of pollution control, but only from the vehicular perspective. “The government still needs to tackle other, far bigger sources of pollution,” he says.

According to a source apportionment study done by IIT Kanpur in 2015 in Delhi, the emission load of vehicles in air pollution in the Capital was 20 per cent. Of the remaining 80 per cent, road dust made up 38 per cent. The share of industries, and construction and demolition was 11 and 12 per cent respectively.  

 
"The push for EVs will also make us dependent on countries like China, Bolivia Congo for lithium and cobalt," added Viswanathan.

Avik Chattopadyay, co-founder, Expereal, a brand consulting firm, says the frequent collision between the government and the auto industry has its genesis in a perception that the government is trying to modernise an industry that would otherwise remain archaic. "This is not really correct as the automobile industry by its very nature is very complex, has a large ecosystem and directly employs three million people," he says.

“Unfortunately, an automobile is perceived as a luxury in our country. It is based on a presupposition that auto industry is all about cars. Otherwise why would it be clubbed with “sinful goods” and attract peak rates,” Chattopadyay asks. "People tend to forget it is also about trucks, buses, two-wheelers, on which we are dependent for our basic, daily needs. Any policy push should take these into account and be well-thought through," says the former executive at Maruti Suzuki India and Volkswagen India.


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