Subsidies to regulations: Lessons India's EV market can learn from China

Despite making all the right noises on EVs, the government’s policy making has been complicated
Since the announcement of the National Electric Mobility Mission Plan (NEMMP) 2020 by the government, the one country that is alluded to with unfailing regularity in policy corridors, company’ boardrooms and various other forums and deliberations is China and for obvious reasons. The country is the world’s second largest manufacturer of electric vehicles (EVs) after Norway. It sold 1.26 million units in 2018, accounting for half of global EV sales.

As India — which has the dubious distinction of being among the world’s worst polluters — seeks to find solution to the menace, EVs are on the forefront of a policy push. Over the last one year, the Indian government has announced a flurry of incentive schemes that are aimed to create both manufacturing push and demand pull for battery-operated vehicles. That said, going simply by the kick-off time, India is 10 years behind China. 

The Chinese government had introduced subsidies to promote EV sales way back in 2010, driven by a single-minded goal to cut pollution. Also that country’s EV industry has grown on the back government regulations aimed squarely at incentivising consumers to move away from internal combustion (fossil fuel-driven) vehicles. Take, for instance, the ease with which a buyer can get her EV on the road. Securing a licence plate for a new car might take up to a year in many Chinese cities, but if you buy an EV, you get a licence plate issued on the spot.

Given that, it is easy to see why players and observers back home are harping on the infrastructure — or the lack of it —issue.

So what are the lessons that India’s nascent EV market, which stands at No. 15 in McKinsey’s global EV market index, learn from China, a country that has managed the transition to EVs on back of government-led incentives? 

Top officials at global automakers in India, who have had stints in China and have closely observed the transformation in the mainland, believe while one cannot compare the two countries owing to the geo-political differences, India can take a leaf out of China’s book. “In India, both policy making and implementation can be very complicated because of difference in governance system,” said Rajeev Chaba, president and managing director at SAIC Corp-owned MG Motor. Still, there are things India can learn.

“They started thinking about EVs 20 years back as they understood the importance of reducing dependence on oil,” he said. Not only that, it also started investing towards energy security and bought cobalt mines (a key ingredient in lithium ion battery making) in several parts of the world, he added. 

China also has a policy head-start, with its maiden EV policy enacted in 2005. This gave the industry 10 years’ time to prepare for the transition — firm up its “go to market strategy”, understand consumer psyche, secure battery technology and so on. On its part, the government took care of the infrastructure. Since then the government has been tweaking the policy to accommodate the changing needs of an evolving market, said Chaba. 

As an example, they started with incentives on all EVs with minimum 400 km of range. The whole thing has evolved and balance has been maintained between state companies and consumer interests, he added. “Unlike China, where they have first assured that the baby born is healthy, in our country even before the baby is born you are putting the condition on how baby has to walk and sleep and eat,” he said, adding that while the government is making all the right noises, policy making has been complicated. 

“We have to understand that it has to be a long term-oriented, step-by-step approach and a win-win for both. Let’s make a 10-year plan like China, the industry will be more than willing to toe the line,” he said.

Venkatram Mamillapalle, managing director at Renault India, says the government policy is heading in the right direction. “How we should implement can be discussed and debated.” According to him, though both countries are not comparable given the governance structure and topographical differences, as a country, “we need to learn from China how we must build our infrastructure to suit the (EV) needs”.

For years, China has put in extensive efforts in localisation and manufacture, making itself globally competitive. “Just by saying that we will have EVs in India in the next 10 years isn’t enough,” says Mamillapalle. It has to be complemented by supply chain management — which includes ensuring energy security through acquisition of mines in the back end and a focus on local manufacturing of parts and aggregates on the front end. Large public sector undertakings like BHEL can be engaged for some of it, he added. One also has to think of re-employing the workforce engaged in manufacturing of ICE vehicles as the number of parts in an EV is only 10-15 per cent of what is needed in an ICE. The latter has close to 2,300-2,400 parts. 

Last but not the least, disposal of lithium-ion batteries, once the vehicle reaches the end of life, also need to be thought through. The quality of electricity and its source — whether it is fossil-fuel based or renewable — is equally critical. “You can’t just control the CO2 and not care about the rest. It will be hazardrous for the next generation,” he said, adding training of firemen and insurance companies will be also important as a fire in an EV has to be tackled differently to ensure batteries do not explode. He said Renault will not rush into launching an EV in India and rather “wait for the perfect ecosystem”.

“Globally, EVs are at a phase where active support is required from the government to push penetration till the network reaches a tipping point and becomes self-sufficient and self-propelling,” says Vikram Janakiraman, managing director & partner, BCG. Sustaining an EV vehicle parc (existing population of vehicles on road) viably needs many investments in the right power generation mix, regulations on tariff, charging infrastructure, new supply chains with active risk management etc, he said.

“Private players can’t do all this without active interventions by governments in supporting and steering this move. Hence if we want India to also adopt EVs and potentially play a leading role in the supply of EVs globally too – it will need serious and patient government intervention, policy clarity and stability to attract investments,” he adds.

Not everyone is in for a calibrated approach to EVs. Implementing these in phases would be difficult due to multiple challenges such as charging infrastructure, limited awareness on sustainability for EVs, after-sale services, expensive mobility compared to existing IC engine powered mobility, says Kapil Shelke, CEO & Founder, Tork Motors. The Indian government has contributed a lot to solve these issues in much less time than the Chinese government, he adds.  

To be sure, even as rest of the world is keenly observing China's EV journey, its electric car boom are showing signs of running out of gas.  After pumping in several billion dollars over the last decade, the government last month announced curtailing the incentives by half. According to the Financial Times, the subsidy for Chinese BEV (battery electric vehicles) purchases which averaged 70,000 RMB ($10,100) declined to 25,000 RMB ($3,607) by June-end. 

While the Chinese market might see a bump in BEV sales in before the deadline, it is likely to lead to a marked year-on-year decline in the second half of 2019, according to media international reports. The move will also prompt policy makers in India to ponder over the the way the government wants to structure the incentives — fiscal or non-fiscal, said an official at NITI AAYOG. He declined to be identified.

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