Globally, the electric mobility transition is underway. Driven predominantly, in different measure in different geographies, by concerns around energy security, climate change and local air pollution. The shift away from fossil fuel powered vehicles to e-mobility will reduce oil demand from the transport sector yielding significant energy security gains, curb GHG emissions, and such vehicles will cease to be point source polluters leading to health benefits. The electrification of transport modes also presents a potential opportunity for countries like India to partake in this burgeoning industry, which will result in macroeconomic dividends. Given the rapid and continuing growth in the automobile sector in India, there is a huge market opportunity presented by the impending transition.
India’s National Electric Mobility Mission Plan (NEMMP), first announced in 2013, is currently the only policy in place to promote e-mobility in India. It envisages electric and hybrid cars sales reaching 6-7 million units by 2020. The Faster Adoption and Manufacturing of Hybrid and Electric vehicles (FAME) policy under NEMMP is aimed at providing demand incentives for uptake of EVs and around 25000 units were sold in 2016-17 with 92% of the total sales being those of two wheelers. In February 2019, the second phase of the FAME scheme (FAME 2) signalled strong policy impetus for the sector, with a budgetary allocation of INR 10,000 crore for a period of three years. Karnataka, Telangana and Maharashtra state governments have come out with their respective EV policies that emphasize domestic manufacturing, with Maharashtra aiming for the manufacture of 50,000 EVs in the next five years.
India is the fifth largest car market and producer of automobiles in the world and it would be astute for the automotive industry to herald the e-mobility transition to maintain and build on its global competitiveness. Beyond the powertrain, the EV ecosystem also includes batteries and the manufacturing and installation of charging infrastructure. NITI Aayog’s report states that domestic manufacturing of batteries presents an INR 20 lakh crore market opportunity by 2030 in a scenario with aggressive electrification. However, despite the large market opportunity the e-mobility transition in India is still in nascent stages. In 2017, less than 0.1% of the 21 million vehicles sold were electric. A range of barriers impede EV adoption, including upfront costs, lack of charging infrastructure and the absence of a clear electric mobility policy. Even as the FAME 2 scheme aims to address these, considerable uncertainties pertaining to fundamental aspects including the macroeconomic impacts of transitioning to e-mobility need to be addressed. A clear understanding of the opportunities EVs present for India will be crucial for policymakers to then design strategies, and mark budgetary allocations, to drive market activity and attract investments at scale.
Despite the commitment displayed in the 2019 budget announcements, the mobility transition in India is currently plagued by shifting goal-posts and no authoritative market signalling of government commitment. In order to drive the transition, there is an urgent need for clear and ambitious target setting for an electric mobility based future, along with coherent support strategies for all the relevant stakeholders.
The cost and opportunity cost of the mobility transition can be categorised in to fiscal, industrial, and retail categories. The economy wide cost of the transition will be a sum of all of these.
Loss of public revenue from the transition - The revenues on petro-products contributes as much as 10-15% of Gross Tax revenue, with the amount as high as 2.5%+ of GDP. With a mass transition in the mobility sector, as well as the financial situation of the power sector, the political economy of this transition is critical to understanding the government's start-stop approach.
Value-chain financing - Electric mobility, unlike RE, has several different choke points. Financing the infrastructure seems like the most daunting of the lot but infrastructure cannot be built using public money alone, the quantum of the capital requirement of that will retard the pace of adoption. Capital flows in this part of the value chain are directly linked to the availability of business models that make cost recovery possible. The financing models will vary for different parts of the value chain.
End-consumer financing - While we have a buoyant auto-loan market, the larger upfront cost and lack of familiarity for lenders on electric vehicles is likely to pose a challenge. There is also a case for accessing new sources of debt for mass procurement as by state governments and municipalities for fleet conversion. Bonds could play a role in smoothening the budgetary spending required for such fleet conversions.
The electric mobility transition will neither be easy, nor cheap, but making the shift will be good economics. It will yield economy wide benefits in the form of reduced mobility costs per passenger kilometre, job creation with high localisation potential in powertrain manufacturing, and health and energy security benefits like reduced air pollution, and a significantly lower reliance on oil imports. India must weigh these costs and benefits, and decisively signal to its industry that the future will be electric.
