The USD 118 billion Indian automotive industry suffered massive losses due to COVID-19-induced lockdowns imposed across the country last year. As the auto sales were beginning to recover by the latter half of 2020 due to relaxation of the lockdown, auto sector’s growth might dip again due to skyrocketing fuel prices.
However, this has turned out to be a boon to India’s electric vehicle (EV) market that has been on a growth trajectory since 2019. Several EV players have reported a stark increase in consumer inquiries and sales since the escalation in fuel prices.
While several factors have been driving this growth over the past few years, the most prominent of them all has been the fall in battery prices which has made EVs more affordable.
“The battery accounts for almost 70% of an EV’s cost. And over the last 10 years, the battery prices have fallen from about USD 1,000 per kilowatt-hour to around USD 150 per kWh—an almost 85% fall. This has triggered the economic feasibility of EVs,” Saurav Kumar, founder, and CEO of Euler Motors told KrASIA.
Euler Motors manufactures and leases light three-wheeler electric vehicles for commercial usage, mostly used by e-commerce companies for last-mile delivery.
The increasing cost of fuel, combined with the government’s mandate on allowing only less polluting vehicles to run on Indian roads, has significantly increased the cost of the internal combustion engine (ICE) or fuel-based vehicle ownership, said Etrio co-founder and CEO Deepak MV. Founded in 2017, Hyderabad-based startup Etrio started with retrofitting—turning old ICE cars into EVs—but has more recently moved towards manufacturing EVs including a three-wheeler light commercial EV.
Owning electric vehicles
Until recently, buying EVs in India did not make economical sense as the prices were too high, and the lack of charging infrastructure meant more hassles than saving cost on fuel. But this is beginning to change. The cost of operation for diesel vehicles ranges between USD 0.04–0.046 per kilometer (INR 3–3.50), while it is about USD 0.026 per kilometer (INR 2) for CNG vehicles. EVs, on the other hand, have an operating cost of less than USD 0.013 per kilometer (less than a rupee) in the best-case scenario which can rise to INR 1 per kilometer, according to Euler Motor’s Kumar.
These savings add up to about USD 800–900 (INR 60,000–70,000) a year, if a light commercial EV runs 30,000 kilometers a year, said MV.
The cost-saving ratio is not much different for electric two-wheelers, according to Ravneet S. Phokela, chief business officer of Ather Energy. Bengaluru-based Ather Energy manufactures electric two-wheelers.
“Broadly speaking, for every kilometer that you run an Ather vehicle, you end up saving two rupees (INR 2) per kilometer. So, if you’re running an Ather vehicle for about 10,000 kilometers a year, you save about USD 225–235 (INR 17,000–18,000) per year simply on fuel cost,” said Phokela.
Although EVs are a tad more expensive than ICE vehicles, Kumar claimed that the savings in fuel cost by owning an EV help recover the price difference between the two. It takes three years for a user to recover the cost difference with diesel vehicles and two years for CNG vehicles. With government subsidy, this timeline reduces by a year, Kumar said.
In fact, government policies and subsidies have provided significant fuel for the growth of the EV sector. While the policies vary between the states, some benefits include exemption from road tax and registration fee, subsidies for purchase of EVs, incentive to scrap old vehicles, and low interest rate on loans, among others.
The central government’s FAME II (Faster Adoption and Manufacturing of Electric Vehicles) scheme, which is in effect till next year, provides for a number of incentives for the manufacture and purchase of EVs as well as for building the supporting charging infrastructure. According to Kumar, the scheme is not only increasing demand for EVs but is also pushing EV manufacturers to adhere to higher standards. EVs need to meet certain requirements in order to qualify for subsidy under the scheme. Euler Motors is yet to become eligible for subsidy under FAME II but Etrio has already secured the subsidy for its vehicles launched in February this year.
Some of the operational restrictions put in place against ICE vehicles in different states have also incentivized the sale of EVs. For instance, electric carrier vehicles are allowed to enter Delhi while restrictions are in place for ICE counterparts to control carbon emission in the city that is already suffering from poor quality air.
Entry of established players in the market has also inspired confidence among Indian consumers to buy EVs, said Phokela. In fact, to take advantage of the EV boom in India, decades old Indian automobile companies like TVS, Hero Motorcorp, Bajaj Auto, Mahindra among others have entered the segment either by investing in other EV startups or launching their own products.
Even Tesla, which had briefly risen to be the most valuable automotive company in the world last year, announced that it will be setting up a manufacturing unit in India. The company also aims to start selling its Model 3 sedan in the country by mid-2021. Ola Electric, the EV arm of India’s largest cab-hailing company Ola has also commenced the construction of what it claims to be the world’s largest two-wheeler factory in Bengaluru.
Bottlenecks slowing down EV adoption
Kumar said that while we have been discussing EVs in India for 10–12 years, its adoption has been slow due to lack of charging infrastructure.
The government’s efforts to incentivize and invest in developing EV charging stations have fallen short so far. As of June 2020, a total of only 933 charging stations have been installed across the country. However, the good news is that companies are stepping up to shoulder the burden themselves. Indian EV startups such as Ola Electric, Ather Energy, and Euler Motors have either set up their own charging stations.
“In India, EV and charging infrastructure is built by different companies because both are complex issues in their own right,” said Phokela. “But because there was no infrastructure in the country, we did not want to wait for anyone to commit to building the infrastructure. We just built it ourselves.”
Recently, Ola said it will create a network of more than 100,000 two-wheeler charging points in the country to accommodate its electric scooters slated for launch later this year. The company is already working on an EV production facility with an investment of INR 24 billion (USD 330 million).
Ather, on its part has opened its charging stations to all EV vehicles which is currently present in 11 cities with plans to expand to over 100 locations in the coming months.
“Our intent is that in any given city where we are present, a customer should have to travel no more than two kilometers to charge their vehicle,” Phokela said.
Electric mobility startup Yulu is no different. It has deployed a fleet of 10,000 EVs that are supported by 2,000 Yulu zones for charging and parking its EVs that covers 50% of Bengaluru, Yulu CEO, Amit Gupta told KrASIA.
Charging infrastructure is equally important for electric commercial vehicles. MV said that most electric commercial vehicles travel within a 60–70 kilometer range, while ICE commercial vehicles travel more than 100 kilometers. “We haven’t seen an EV which can give that kind of range. It can only happen if the EVs come with bigger batteries or there are more charging stations,” said MV.
Being able to cross this mark of 100 kilometer can diversify usage scenarios for commercial EVs, he added. Due to the short travel range, the application of EVs in the logistics sector has been restricted to intra-city travel. As more and more charging stations sprout up, EVs can begin to be deployed for intercity logistics as well.
Dependency on other countries to source electronic parts has also been a big deterrent for India’s EV sector. It was only last year that India got its first EV battery manufacturing plant. Most EV players in the market currently import EV parts, especially battery cells.
Euler Motors, for instance, imports batteries and other electronic parts from suppliers across the US, China, Taiwan, Korea, and Europe. Bengaluru-based Yulu, which offers EV bikes on rent, designs its bikes in-house but the parts are manufactured outside India and then assembled in the country by Bajaj Auto, an investor in the company. Even Ather Energy, which sources almost all its parts locally, resorts to importing lithium-ion cells.
EV growth has been picking up the pace for the last few years. Even last year, while the global pandemic was in full swing, EV startups’ growth exceeded expectations. Yulu, for instance, grew its fleet from 500 in 2019 to 10,000 currently. The company expects to grow its fleet to at least 50,000 by the end of this year. Yulu is also eyeing a growth rate of 500% year-on-year for the next four to five years, Gupta said.
Euler Motors bagged a revenue of INR 6 crore (USD 810,000) last year, up from INR 1 crore in 2019. This year, the company expects its revenue to reach INR12–14 crore. Even Etrio, which launched its three-wheeler in February this year, has seen strong demand for its vehicles.
Kumar believes that the growth of EVs in India will be propelled by the three-wheeler and two-wheeler segments. A report by Avendus Capital which echoes Kumar’s sentiment, said India’s EV market is expected to reach INR 50,000 crore in size by 2025.
The pandemic triggered an unprecedented growth of e-commerce last year, a trend that is likely to continue in the future. This growth, in turn, will continue to boost EV adoption among logistics and e-commerce players, said Charles Cole B. Navarro, investment associate at ADB Ventures, that invested USD 2.6 million in Euler Motors last year.
The trend of e-commerce players electrifying their fleets has already started. In February, Amazon struck a partnership with Mahindra Electric to add 10,000 EVs to its local delivery fleet by 2025.
Talking about his outlook of the Indian EV market, Navarro said, “We are very optimistic about the Indian EV landscape. There is a lot of activity and energy in the space, and strong interest from both local and international investors. This dynamic ecosystem is not common in Asia outside of China.”