Updated: Jan 30, 2022
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India finds itself at a very crucial juncture where all countries are engaged in an attempt to reduce overall carbon emissions. With this in mind, India finds itself to be in an opportune setting to take lead in switching over to electric vehicles to ensure greener and cleaner technology. This switch has the potential to reduce carbon emissions and to address the problem of air pollution in this country. It will also help meet India’s climate commitments by reducing energy intensity. In the following sections we shall look at the extent of carbon emissions in the global and domestic level. In this paper, we will identify the major areas in which the government can intervene and make a huge impact in accelerating the growth of electric vehicle adoption in the country.
1.1. Global Scenario:
1.1.1. Global Emission Trends and Impact on Climate
To understand global emission trends, it would be best to categories countries into developed economies and developing economies. Global energy related CO2 emissions flattened in 2019 at around 33 gigatons (gt), following two years of increases. This resulted mainly from a sharp decline in CO2 emissions from the power sector in advanced economies due to the expanding role of renewable sources, fuel switching from coal to natural gas, and higher nuclear power generation. (International Energy Agency, 2020). Thus carbon emissions play a significant role in climate change adversity and interestingly enough countries which have made a shift to cleaner technology have witnessed a plateau in carbon emissions as opposed to their developing and under-developed counterparts.
Figure 1: Energy Related CO2 Emissions, 1990-2019. (International Energy Agency, 2020)
1.1.2 Sectors Responsible for creation of Carbon Emissions
The CO2 emissions mainly come from the burning of fossil fuels in the electricity and heat sector and the transport sector. As is shown in Figure 2, the electricity and heat sector accounts for 57% and the transport sector is responsible for 16.20% of the world’s total CO2 emissions. Thus, the transportation sector is significantly responsible for CO2 emissions. (IPCC, 2014)
Figure 2: Global Carbon Emissions from each Sector. (IPCC, 2014)
1.2 The Indian Scenario
1.2.1 Indian Emission Trends and Impact on Climate
India is the third largest emitter of CO2 in the world, emitting 2.3 gigatons (gt) CO2 in 2015. In fact when measured in absolute terms, India’s emissions have been the third-highest globally since about 2008.
At the same time gross domestic product (GDP) is projected to increase faster than most countries from 2013 to 2040, indicating that energy consumption and emissions may see a large increase as more people use more energy. As standards of living improve, climate change impacts pose serious challenges to India’s economic growth, agricultural outputs, public health and development. The per capita emission of CO2 has seen a steady increase in the past 2 decades and therefore reinforces the above data. However, in the first 8 months of 2019, growth in India’s CO2 emissions slowed down sharply, putting the country on track to its lowest annual increase in nearly 20 years. The slowdown can be attributed to an increase in the renewable sector which suggests a scope for continued emphasis on sustainable and greener technology.
Note: CO2 emissions are measured on a production basis, meaning they do not correct for emissions embedded in traded goods. OurWorldInData.org/co2-and-other-greenhouse-gas-emissions/ *CC BY
Figure 3: Per Capita CO2 Emissions, 1990-2019. (Our World in Data based on the Global Carbon Project; Gapminder & UN)
1.2.2 Sectors in India Responsible For the Creation of Carbon Emissions
According to Figure 4, the largest sector contributing to creation of carbon emission in India is the Electricity and Heat sector, with 1.11 Billion tonnes of emissions. Transport contributes a hefty amount of 265.3 million tonnes to total emissions in India. This suggests that a focused transition to more green technology such as EVs is going to have a definite positive impact on the environment. This also reiterates the global scenario as the Electricity & Heat and Transport sectors are major contributors to overall Carbon Emissions. (Our World in Data, 2016)
Figure 4: Greenhouse Emissions by Different Sectors in India. (Our world in Data; CAIT Climate Data Explorer via. Climate Watch)
1.3 India’s Automotive Vision
The above sections reiterate that focus on greener and cleaner technology has the potential to create positive environmental impact. The switch to Electric vehicles can be the first important step for dealing with the severe environmental issues that the country faces.
India has certain qualities which make it a suitable hub for adoption of electric vehicles. The high abundance of renewable energy resources, the availability of skilled manpower, technology in manufacturing and IT software, the ability to afford opportunities which pivot towards adoption of new technologies and a culture which accepts and promotes sharing of assets and resources for the overall good. Thus, these circumstances make it suitable for India to pursue an EV policy which systematically ensures that India’s EV program makes strides when compared to the EV developments in the global scenario.
According to India’s Automotive vision:
“By 2026, the Indian automotive industry will be among the top three of the world in engineering, manufacture, and export of vehicles and auto components, and will encompass safe, efficient and environment-friendly conditions for affordable mobility of people and transportation of goods in India comparable with global standards, growing in value to over 12% of India’s GDP, and generating an additional 65 million jobs” (Society of Indian Automobile Manufacturers, n.d)
2. Our Objective
Electrification represents the biggest technological development in the automotive power industry in decades. The environmental benefits accruing due to this transition as discussed in the previous section suggests that this transition is favourable. However, for large scale adoption of electric vehicles in India, it requires significant changes in the policy realm.
With this in mind, this paper makes a sound case for the implementation and creation of an Electric Vehicle friendly eco-system. We will first understand the supply side of the electric vehicle industry and understand methods to incentivise manufacturers for large scale electrification. We will also focus on the infrastructure required to drive this large-scale adoption and the required research and development. This paper also looks at the electric vehicle industry from the lens of the consumer. The automotive market in India is quite different as compared to its western counterparts where electric vehicles have seen a welcome. The varied vehicles and different income segments will have a profound effect on the purchase and use of electric vehicles. Incentivising adoption of electric vehicles in the public and private, becomes relevant.
To aid in the shift, there is a prominent need of prescient and strategic policy interventions. Thus, the paper shall look at specific policy suggestions to fasten the implementation process.
3. Enhancing the supply of EVs
Incentives and Infrastructure are two aspects that require serious attention towards encouraging quick and sustained adoption of Electric Vehicles in the country. Several countries have adopted different permutations and combinations of these two aspects. For the purpose of this study China and its dual credits policy has been used to study successful incentive schemes owing to its success and similarities with the Indian context. In case of infrastructure, the United States’ policies towards the development of Electric Vehicle Supply Equipment (EVSE) has been chosen given the success of the Federal political structure of the country and successful embedding of Federal Policies that can guide the Indian roadmap.
3.1 Manufacturing and Production:
3.1.1 Incentives for auto manufacturers to transition to EV manufacturing (China Case Study*):
*China is chosen because China has demonstrated one of the highest conversion rates amongst developing nations with regards to EVs.
Figure 5: Basic structure of Dual Credits Policy; Credits imposed on auto companies
To promote auto manufacturers to transition to manufacturing Electric Vehicles, China's dual credits system, which itself was inspired by State of California's policy to promote Zero Emission vehicles (ZEVs), can be used as a benchmark, as it has successfully increased EV production in China, as evidenced below.
China follows what is known as the dual credits policy. The dual-credits policy has two aspects, namely: CAFC (Corporate Annual Fuel Consumption) credits and NEV (New Energy Vehicle) credits. This focuses on reducing fuel consumption and increasing the number of EVs manufactured respectively.
The total sum of the CAFC credits and the NEV credits gives a company its total number of credits in a given cycle, which is used to determine if the company will have to pay penalties, and the magnitude of those penalties, which range from tax increases to production being shut down.
The dual credits policy works to create a market of credits in which positive credits (earned by a company manufacturing vehicles producing less fuel than the government mandate and/or manufacturing more EVs than the government mandate) can be accumulated or sold, while negative credits (earned by a company manufacturing vehicles producing more fuel than the government mandate and/or manufacturing less EVs than the government mandate) can be offset by previously accumulated credits or by buying credits from other companies. This creates a kind of credit bank and because it earns profits from selling credits, it incentivizes companies to follow policies to earn more credits. It is to be noted that procuring CAFC credits is relatively tougher than procuring NEV credits due to more stringent fuel consumption norms. Additionally, excess NEV credits can also be used to offset net negative CAFC credits.
“The CAFC credit is the scalar product between:
(i) the difference between the standard value and actual value of the average fuel consumption of a specific automobile enterprise
(ii) the total automobile production of that enterprise in a calendar year” (Wu et al., 2021, p. 4).
If the CAFC credits that a company accumulates in a year is greater than a government prescribed threshold, it would yield a negative result translating to net negative credits, and if the CAFC credits are lower than the threshold, the result is positive. A company can accumulate positive credits or sell excess credits to other companies. If a company has negative credits, it has to either take in credits from its reserve pool or buy credits from other companies (Wu et al., 2021, p. 4). Companies with net negative credits have to pay penalties to the government, and in specific cases run the risk of their production being shut down. This policy pushes auto manufacturers to progressively produce vehicles with less fuel consumption.
The other aspect of the dual credits policy is the NEV credit system. The NEV credit is based on the difference between the actual number of EVs manufactured by an automobile enterprise, and the number of EVs that should be manufactured by an automobile enterprise as per the government mandate (Wu et al., 2021, p. 5). If the difference between the two values is higher than a government specified threshold, the result is positive, and if the difference is lower than the aforementioned threshold, it yields a negative result.
Although not implemented in China, a similar policy can be used to incentive manufacture of electric motorcycles and scooters as well. The credits for manufacturers of both automobiles and two wheelers would be calculated separately for both the automobile and two wheeler manufacturing units respectively, and the credits for two wheeler manufacturing units/ firms would maintain a structure similar to that for automobiles except with constraints for two wheelers.
3.1.2. Effects of Dual Credits policy
● Stable rise of demand in NEVs:
Figure 6: % of NEV sales in China as a percentage of local sales (China Association of Automobile Manufacturing and PRC Ministry of Industry and Information Technology via CSIS, 2020)
As seen by the graph, NEV sales as a percentage of local sales declined in 2019, which can be attributed to the withdrawal of some financial subsidies that made it beneficial for the individual consumer to buy NEVs, emphasizing the importance of individual financial subsidies to the consumer. However, sales have picked up in 2020, as the dual credits policy encourages manufacturing of NEVs due to relatively more stringent CAFC credit restrictions, pushing auto manufacturers to make NEVs a better product to purchase from the individual consumer’s perspective so that the sales keep up with the manufacturing of NEVs.
The graph shows that the “sector has struggled to maintain forward momentum as a result of uneven technological progress, growing pains within some individual companies, and volatile consumer demand” (Kennedy, 2020). However, demand has recovered in 2020, with sales crossing their pre 2019 levels for the first time in July. This shows that despite black swan events like the 2020 COVID pandemic, the demand for NEVs remained steady, which further incentivized suppliers to catch up.
The demand for NEVs remaining steady and in fact increasing as a percentage of sales indicates that manufacturers, nudged by the dual credits policy, are investing in research and development to simply create a better product than before. Selling NEVs is economical, in light of relatively more stringent CAFC restrictions, which disincentives development of newer conventional vehicles and incentives companies to develop NEVs as per a consumer’s needs.
Figure 7: NEV Market Equilibrium in China (China Association of Automobile Manufacturers and PRC Ministry of Industry and Information Technology via CSIS, 2020)
Moreover, the balance between supply and demand has been maintained, barring brief periods. This is important as this illustrates that the policy has not pushed manufacturers to produce NEVs even when there is no demand. This also addresses one of the major criticisms of the policy that it coerces manufacturers to shift to NEVs at substantial losses at the threat of their production facilities being shut down indefinitely.
● Potential benefits of dual credits system on Make in India:
*Note: In Renminbi, based on estimated average credit value of RMB 200.
Biggest winners and losers of the dual credits policy in millions of Chinese Renminbi (PRC Ministry of Industry and Information Technology via CSIS, 2020)
Furthermore, a positive externality of the policy has been the promotion of indigenous Chinese manufacturers, which are more suited to invest in R&D specific to the Chinese market than their foreign counterparts. If the policy is implemented in India, it is expected to yield similar results and encourage manufacturing and research in India for the Indian market in accordance with Make in India.
The Dual Credits System places uneven costs on foreign and especially US based auto manufacturers. While this was not the intention of the policy, the variance comes from difference in the perception of the policy by Chinese and foreign manufactures. Chinese domestic automakers see the “system as a mandated minimum quota, while foreign producers perceive it as a market-based incentive system with no penalties beyond the need to buy credits to stay in the government’s good graces” (Kennedy, 2020). Foreign auto manufacturers have been reluctant to develop EVs for the Chinese market, due to the high costs associated with establishing supply lines in China given the historically uncertain trend behind the demand for Electric Vehicles.
China based car manufacturers have gained significantly under the dual credits policy. This aspect of the policy makes it significantly easier for any government to justify the policy to its constituents, and makes the political costs involved with adopting the policy low. This also fits in line with the Prime Minister’s Atmanirbhar Bharat scheme of emphasising indigenous production of products.
● Decreasing the average fuel consumption:
Figure 8: Required Average fuel consumption by 100 KM/Litre (Wu et al)
One of the primary purposes of the policy is the reduction of carbon footprint. To that effect, the policy stipulates reducing required Average Fuel Consumption for companies at least till 2023. Judging by the historical trends of companies being able to meet the standards without significant shifts in the market equilibrium for NEVs despite the previous norms being strictly enforced and as a consequence followed in general, it can be concluded that, ceteris paribus, the average consumption, a metric that directly impacts the carbon footprint, will reduce as per norms, leading to significant decreases in the carbon footprint from vehicular emissions in China.
3.2.1 Learning from Market Leader (USA- Case Study):
The Global Electric Vehicle Supply Equipment market size was valued at USD 14.1 billion in 2018. EVSE (Electric Vehicle Supply Equipment) is supply equipment used for charging electric vehicles in various residential and commercial locations such as homes, corporate offices, highways, parks, hotels, and bus depots. Increasing initiatives by both public and private sectors to encourage the adoption of EVs favours market growth
Figure 9: (sourced from US Electric Vehicle Charging Infrastructure Market Report, 2021-2028 via www.grandviewresearch.com)
Figure 10: (sourced from US Electric Vehicle Charging Infrastructure Market Report, 2021-2028 via www.grandviewresearch.com)
a) Current Scenario
In 2019, the sale of EVs increased, which has pushed the demand for convenient and affordable charging stations that have grown considerably. State and federal policymakers along with utilities and private industry are working rapidly to expand charging station infrastructure with more than 27,000 public charging station locations functioning currently.
b) Costs of EVSE
The demand for infrastructure can include setting up charging equipment in homes, apartments, work stations, public outlets and interstate junctures depending on the usage and ownership. The associated costs of setting up these equipment vary with usage, location, incentives, etc. The costs associated with owning and operating Electric Vehicle Supply Equipment generally include:
Over and above that, a site owner may also want to consider the upfront costs that are incurred to identify viable locations for an EVSE station. This may include fees for consultants, site evaluations, or feasibility studies needed to assess the electrical capacity and location of utility service lines serving a given facility or site.
c) Policy Initiatives
Let us now look at the various policy initiatives one can take for bettering infrastructure. Legislative incentives include measures that
1. Financial incentives for purchasing electric vehicles or electric vehicle supply equipment (EVSE) that include charging infrastructure
2. Parking incentives and utility incentives that include rebates and grants for transportation electrification
3. Price reductions for charging EVs during off-peak hours. (For example, several electric utilities offer lower off-peak price per kilowatt-hour)
4. Electric charging infrastructure tax credits
5. Research project grants
6. Lead by example initiatives like zero-emission vehicle (ZEV) requirements
Policy initiatives taken at the National and the inter-state levels in the USA which can be applicable to the Indian context.
1. Building Awareness: Nine states in the USA have developed a Zero Emissions Vehicle [ZEV] action plan focused on increasing consumer awareness and incentives along with building out infrastructure and vehicle dealership training. The government of India can also create similar plans for increasing consumer awareness around the EV ecosystem and infrastructure.
2. Leveraging Networks: The National - US Department of Energy’s Clean Cities Coalition Network is a coalition of businesses, fuel providers, vehicle fleets, state and local government agencies, and community organizations. India can also capitalise on their existing networks to build such a collaborative space. The stakeholders can then collaborate, share experiences, information and resources, educate the public, collaborate on transportation projects, and help identify research needs. The localised groups can then work on transforming regional transportation markets and towards development of EV infrastructure. This can increase rural penetration of charging infrastructure in India.
3. Tax Credits: Businesses and individuals are offered a tax credit by the federal government for the purchase of EVSE. Fuelling station owners may receive a tax credit of up to $30,000 per charging site and residents may receive a tax credit of up to $1,000. Similar tax credits can be given to Indian businesses and Indian residents.
4. Alternative Fuel Corridors: With the designation of alternative fuel corridors, Federal Highway Administration is establishing a national network of alternative fuelling and charging infrastructure along national highway system corridors. India can similarly pilot the deployment of charging infrastructure along national and state highways. This shall facilitate pan-india implementation of EVs.
5. Networks and Interoperability: Interoperability broadly refers to the compatibility of key system components that allow vehicles, charging stations, charging networks, and the grid to exchange information, communicate effectively and work together as part of a seamless charging system. Interoperability is essential to the optimal functioning of the charging network. As a whole, currently existing charging networks in the US are not interoperable but state policies have been aiming at developing universal networks to afford a wide range of charging for electric vehicles. Risk Free payment at public charging stations is an important factor. For example, California has adopted regulations requiring all public networked chargers to be equipped with credit card chip readers that accept one of three major credit cards starting in 2022. India can also work for increasing interoperability while working on bettering infrastructure.
3.2.2. Best Practices for India
India Electric Vehicle Supply Equipment (EVSE) Market
Figure 11: India EVSE market SIZE, trend analysis from 2019 to 2025. (n.d.)
India needs to focus on development of infrastructure for faster implementation and adoption of EVS. Given the length and breadth of the country covered by the National Highways, range anxiety will have to be addressed, which will require inter/multi-state policy considerations as well as setting up of charging/ alternative fuel corridors as is being done in the United States.
Similarly, state electricity grids will have to be connected through electricity providers and formation of coalitions will go a long way in achieving efficiency and for exchange of information and best practices. Tax credits can be leveraged to incentivize service providers to set up the EVSE infrastructure.
4. Consumer and Market Demand
4.1 Consumer Segments
For the purpose of this paper, the catering sector of electric vehicles is limited to transportation via road. Road Transportation has emerged as the dominant segment in India’s transportation sector with a share of 4.5 percent in India’s GDP. (Niti Aayog, n.d.) Within transportation by road, we can divide transportation to be public (government owned), private (vehicles owned and operated by private individuals) and businesses (this includes but is not limited to cab services as well as the logistics industry).
This is suggestive of the fact that the implementation of an EV policy to encourage adoption electric technology will have a significant advantage. The environmental benefits accruing to this transition shall be monumental due to the high share of the road transportation. There are also major economic benefits due to this transition.
4.2 Auto Indian Market/Landscape
Since the transition to electric vehicles has been deemed desirable, we must now see the auto landscape of India. According to Niti Aayog report the Indian market presents a case of novelty, where there is use of a large variety of motorized transport on roads and its auto segments are quite different from that of the most of the world. Based on the last six years of sales data, one can divide the Auto Indian Market into the following categories. (Niti Aayog and World Energy Council, 2018)
● Premium four wheelers
● Economy Four wheelers
● Buses and Large Goods Vehicles Like trucks
● Three Wheelers
● Two Wheelers
● Economy Two wheelers
Figure 12: Indian auto landscape (NITI Aayog & World Energy Council, 2018)
4.3 Consumer Consideration for Purchase of EVs in India
One of the most important things for large scale adoption of EVs in the Indian landscape is the willingness for consumers to shift to EV technology. Serious consumer consideration for the purchase of EVs is necessary to ease the process of EVs. There is a certain amount of fear and uncertainty that surrounds novel technology. Conventional vehicles are currently the norm, and therefore the shift to new technology shall face resistance. To assess consumer consideration, we put out a survey to gauge the perception of consumers towards Electric Vehicles and also their views on government involvement in the process of promotion of EVs. For survey questions please refer to appendix.
To our delight, we saw that 94.5% are willing to purchase an EV in the next 10-15 years. 47% of these belong to metro cities and the rest 53% to Tier 2 and 3 cities. This means the aspiration for purchasing EVs in the long term is nearly almost there. The government can easily capitalise on this positive attitude for promoting the transition to EVs. Some of the reasons for not wanting to transition to EVs is because one is accustomed to the ICE technology and therefore making the shift seems unfavourable. There is also considerable hesitation to switch due to the usage of lithium in electric vehicle batteries. But on an overall level the response for EV switching was optimistic in tier 1 and tier 2 cities and therefore gives one hope that there shall be faster adoption of EVs.
Consumer behavior to adopt EVs is considered to be pro-environmental behaviour. Of all our respondents, 85% feel that EVs are environment-friendly in the long run. This clearly displays the positive attitude of people towards EVs and also the environment. The need to switch to EVs can be conveyed as a necessity accruing out of climatic adversity that the country is currently facing. In terms of the quality of EVs over conventional vehicles, our survey suggests that 64% people think EVs are smoother, faster and more efficient than conventional vehicles. However, EVs lose to conventional vehicles when it comes to affordability. This is because 75% of people think EVs are more expensive than conventional vehicles. This myth will be debunked in the following sections. The government should work on educating and mitigating any such myths when it comes to purchase of EVs.
Only 1 out of 2 people surveyed believe that the government is promoting EVs enough. This is a cause of concern as it also shows lack of knowledge of the various schemes and programmes the government currently has in place for the adoption of EVs. There has to be perfect information between various stakeholders which include, the government, manufacturers and consumers about the EV market and technology. If this asymmetry of information is mitigated, there shall be less reluctance in adoption of EVs and the transition will take place sooner than anticipated.
4.4 Factors influencing Consumer Demand and How to Incentivise Demand
4.2.1 Before Sale of EV
Marketing and Awareness: There needs to be significant focus on marketing electric vehicles for faster consumer adoption. The shift from familiar automotive technology to a new alien technology will face some friction. The government can step in to create awareness drives and campaigns about the use of EVs. The government and all other stakeholders (especially manufacturers) should make use of every feasible promotional and advertising platform. (Shelke, 2019) To make the process easier the following can be done:
● Comprehensive Explanation: EVs on paper and in reality are much cheaper to use than an internal combustion vehicle in frequent urban journeys. This must be effectively communicated to citizens to elicit proper understanding of consumer experiences. The survey conducted reveals that The key advantages of EVs must be explained and demonstrated in all government communication opportunities.
● Campaigning: Similar to the Arvind Kejriwal, Switch Delhi campaign can be adopted to facilitate transition to EVs. Appeals to delivery chains, big companies, resident welfare associations, market associations, malls and cinema to promote electric vehicles and set up charging stations at their premises can be made. (Energy Economic Times, 2021) This can be done at a central level to hasten the implementation.
● Commercial Pressure and Detailed Explanation don’t combine: EVs need to be sold with a nonselling approach. The lack of competition in this market makes incentives/ market campaigns less effective. A similar product such as ‘the product genius’ (the Product Genius is a highly qualified vehicle expert with a comprehensive technical knowledge of all BMW models) used by BMWs can be developed by the government and therefore can be an effective mechanism for dispensing specific product details.
● Use Novelty as a Selling argument: Most customers of the auto industry do not necessarily get a radical new product but EVs do provide that alternative. The government can use this as an opportunity to sell the novel aspect of this intervention. The survey conducted by us showcased a positive attitude towards buying EVs in the young population. The government can capitalise on this by marketing to specific target groups such as students and young working professionals. They can encourage future purchase of EVs this way.
4.2.2 During Sale of EV:
In this section we will discuss three very important factors which are taken into account during the purchase time for a consumer. (A) Price (B) Quality (C) Durability. The government can influence consumer perception and behaviour in these three categories distinctly. In the next sections we will be discussing each of these
(A) Price: Price significantly factors into a consumer’s decision to purchase an electronic vehicle. Thus the government can resort to fiscal incentives to play a role in purchase and use of EVs. These mainly contain tax credits, tax reduction, tax exemption or direct subsidy during purchasing and also include a free road tax, cheap electricity price or free parking with the use of EVs.
1. Direct Subsidies
Figure 13: Direct subsidies by country and corresponding electric vehicle market share in 2015 - (Yang et al., 2016)
Direct subsidies tend to be a major focus area because of the higher initial cost of electric vehicles relative to conventional vehicles. Direct subsidies are found to be a statistically significant driver for increased electric vehicle sales in different technical studies by various research groups. Leading electric vehicle markets that previously had substantial direct subsidies, but then had them repealed, have seen major drops in sales. For example, the Netherlands reduced its electric vehicle incentives, and its electric vehicle sales share dropped immediately.
Figure 14: PHEV and PEV units sold, by month, Sept 2013 – Sept 2014. (Yang et al, 2016)
However, the same analyses demonstrate several counterexamples, where electric vehicle market response does not appear to be linked with financial incentives. For example, markets like France, Japan, and South Korea have had substantial incentives that have not been associated with a comparatively high electric vehicle uptake in 2014 and 2015. The potential underlying reasons for these incentive-rich markets not seeing electric vehicle uptake are many. For example, consumer awareness about the incentives , charging infrastructure , and other non-financial local incentives are among the important other factors that affect electric vehicle uptake. The National Research Council (NRC) (2015) concluded that although the incentives are motivating prospective consumers, local incentives that differ in value, restrictions, and calculation methods are making it challenging to educate consumers on what is available. (Yang et al., 2016)
2. Tax breaks:
In total there are four main categories of tax for a vehicle:
2. One time purchase/registration tax
3. Annual circulation tax
4. Company tax
Vehicle tax reductions are most commonly implemented at the national level and apply either on a onetime basis at the time of purchase, or annual taxes paid by consumers.
Vehicle tax reduction policies also may have eligibility constraints that affect the amount of tax reduction allocated to consumers.
Governments can design tax reduction policies to promote a specific electric vehicle type; for example, BEVs in Norway are fully exempt from vehicle taxes, whereas PHEVs receive partial vehicle tax reductions. There may also be eligibility constraints based on vehicle CO2 emissions. Electric vehicles in the Netherlands, France, and the United Kingdom are exempt from vehicle taxes if their CO2 emissions are below a certain level. The cost of an electric vehicle may be another factor that affects the amount of vehicle tax reduction available to a consumer. Washington State for example only provides vehicle tax reductions to electric vehicles that cost less than $35,000. Vehicle tax reductions can also depend on vehicle curb weight; Denmark exempts taxes for electric vehicles that weigh less than 2000 kilograms (kg). (Yang et al., 2016)
3. Scrappage Policy :
A scrappage policy that provides a purchase incentive when a customer scraps an old ICE (internal combustion engine) vehicle and buys a new EV, which is a unique approach towards addressing the scrapping problem of the entire automobile industry, making the purchase more affordable and reliable.
4. Total Cost of Ownership (TCO Analysis):
Total Cost of Ownership (TCO) is a tool to determine the monetary cost of owning a vehicle over a definite period of time. Comparing the Total Cost of Ownership enables us to understand which product is better monetarily from the consumer’s perspective, and the policy recommendations required to promote the desired product if said product falls short.
The general formula for TCO of an asset is:
TCO = (Initial Costs) + (Operating/ Maintenance Costs) – (Resale Value of assets)
Extrapolating that to vehicles, we get the following formula (Gass et al., 2014):
Where, I is the initial costs of ownership
Ct is the Operating Costs
r is the Discount Rate
R is the Resale Value
t is years elapsed since initial year
N is total number of years taken
For the Indian Market, to compare the TCO of owning an EV versus the TCO of owning a petrol and diesel vehicle, we used Tata Nexon EV, MG Hector petrol and diesel respectively, as all fell within the same base price range. The operating costs were dependent on electricity and fuel costs respectively, and the discount rate was taken to be 10 percent (Topal et al). The TCO was calculated for a five year period. The resale values were capped at 60% for petrol vehicles and 50% for their electric counterparts. The result, when plotted graphically, yielded:
Figure 15: TCO Analysis
The results show that despite having the same base prices (Rs. 15 lacs), the costs of owning a petrol and diesel vehicle was substantially greater for at least the first five years of vehicle ownership than the costs of owning an EV in India for the same time period. This difference is mainly because of the difference in the cost of electricity and conventional fuels Thus, EVs are monetarily beneficial to the consumer, and a contingency of existing policies is sufficient to maintain this desired disparity.
● Design- Designs that might be analogous to traditional Internal Combustion vehicles or fuel based vehicles will tend to attract more consumers initially. PEVs (Plug-in Electric Vehicles) come closest to the fuel based car used presently. Mass adoption of PEVs can be encouraged by the government by monetary and non-monetary incentives. While monetary incentives are discussed further in the paper, non-monetary ones can include allowing plug-in vehicles access to bus lanes and high-occupancy vehicle lanes, free parking and free charging.
The factor of design is crucial to user experience, especially in the maiden phases of an EV rollout, since a sudden change in design might not be perceived as well by consumers. Therefore, the government can look at allowing rollout of only PEVs initially, and provide fiscal and non-fiscal benefits on those vehicles.
● Speed- Consumer adoption here will depend on their speed requirements and how that compares with top speed ranges of the fuel based cars. Speed target of an EV depends on the kind of batteries used. When more speed is needed, more power is needed from the electric motor. The electric motor power affects the electric voltage and current specifications needed, hence it depends on the battery specifications.
One obstruction for EV conversion is the cost. Optimization of the mileage and the speed can be affected by the cost target. Hence, adoption of the right batteries becomes important. The government can aid in encouraging new battery technologies that can optimize mileage and speed, almost comparable to the conventional vehicles, though it is expected that the average speed of an EV is still going to be higher than a fuel based vehicle.
● The lifespan of the vehicle is almost directly associated with the lifespan of their batteries. The Lithium ion batteries are expected to have a lifespan of 15-20 years. The disposal is harmful to the environment and thus new technologies to dismantle, reuse and assemble the car batteries are being developed, so that the lifespan of an EV can be increased from 15-20 years.
● Another factor which affects the car’s expected battery is that heat and lithium-ion do not pair well together. Cars that are located in hotter climates will typically experience a faster battery depletion. This is why most electric vehicles are equipped with a liquid-cooled battery pack. Since India also experiences hot weather, it would be wise for the indian government to take cognisance of this while promoting EVs.
● Level 3 fast charging stations are stations which can charge the battery to 80 % in 30 minutes, but they can overheat the battery. This can affect the battery’s long term performance and longevity. The government should promote level 2 Charging stations to increase the durability of batteries. (Hearst Autos Research, 2020)
4.2.3. After Sale of EVs
Several value propositions to customers to make it viable such as portability, ease of battery exchange, maintenance and after-sales, recycling of batteries, availability of battery replacement stations, among other factors.
Electric car maintenance is far simpler than the maintenance of a regular vehicle. This is because, with fewer parts moving, there’s far less to worry about. Ideally electric car servicing and maintenance is much easier and more cost-effective. An electric car does need servicing at the same intervals as any car. Tyre wear and tear, windscreen wiper replacement along with brake fluid changes will all still be needed. Low tyre pressures can be unsafe and they'll reduce your range - expect roughly a 3% drop, according to the RAC. Like any car, an MOT will be needed after three years but with no emissions test and with fewer parts to test, repairs could be minimal. Specific maintenance centres for EVs should be promoted. This can also act as a place for dispensing of information regarding EVs and their functioning.
(B) Access to Charging stations
This is still where EVs lose out against conventional vehicles. While EV infrastructure is constantly being updated in major cities, it is still from ideal. And out on highways and smaller cities, a public charging station is an absolute rarity. And while an EV can be charged using a regular wall socket, the charging time is significant. In India the spread of charging stations is mostly limited to urban ecosystems. The spillover to rural areas has not been seen.
To fasten the implementation of EVs, there is a grave necessity for developing charging infrastructure. This strongly affects consumers and their decision to purchase EVs. Government can try developing charging stations at least on national highways. This will allow the eventual penetration of EV technology from metropolitans to tier 2 and tier 3 cities. The state of the existing Indian infrastructure shall be discussed in the next section.
5. Go to Market Strategy
The Indian electric Vehicle industry has seen impressive growth over the last decade, with the public and private sector being cognisant of this change. But there is so much to do to further the transition to electric drive vehicles. It will take a sophisticated set of policy tools and local action to spur manufacturers, localities and states to aid in the shift.
5.1 Desirable Cities for Facilitating EV Implementation
Figure 16: (CEEW Centre for Energy Finance (CEF), n.d.)
If we divide the Indian landscape into different cities based on the population and level of development, we arrive at the division of Tier 1 (metropolitan) and Tier 2 cities. Based on this division, metropolitans should be the early adopters of the Electric Vehicle space and then expanding it to smaller towns and tier2 cities. This is due to a variety of reasons:
1. The implementation of pro EV policies is dependent on the existence of a sound infrastructure which includes accessible charging stations. Based on real time data gathered by CEEW Centre for Energy Finance (CEF), we have identified the Tier 1 cities to have the greatest developed charging infrastructure and thus are the most suitable for rolling out policies.
2. The city-level systems for building charging infrastructures could be an incentive to start in the metropolitan cities of India.
3. Metro cities could lead the way due to mass mobility requirements. These include but are not limited to public transport, last- mile connectivity requirements of metros, commercial road travel enterprises, high consumer demand, etc. 4. High disposable incomes of residents of cities make the process of adoption of EVs more easy.
5.2 Most Suitable Vehicle for focused EV implementation
To assess the most desirable type of vehicle for implementation of Electric Vehicles in the Indian context, we will see it to be a function of ‘Ease of Implementation’ and ‘Market Size of vehicles in India’.
Figure 17: Desirability of Implementation of EVs
The market size of different vehicles in India has been taken from the Niti Aayog report. (Niti Aayog and World Energy Council, 2018) The Ease of implementation of vehicles has been given scores according to the development level of industries, existing favourable policies and how cost effective they are. Based on this, the above graph suggests that two-wheelers are the most desirable point of entry for EV implementation and promotion by the government.
To understand the use of vehicles specifically in the urban landscape, we can turn to the ICE survey of 2016. They suggest that the metropolitan cities account for 40% of car ownership. The survey also suggests that the two wheeler is the chosen vehicle for most Indians in their daily commute to work followed by the bicycle. 33 percent of Indians use a two-wheeler to reach work. In metro cities, over 20% population uses public transport to travel to work and about 37% use private owned cars and the rest either are dependent on 2-wheelers, 3-wheelers or bicycles.
Hence, a strategy to rollout two-wheelers can be beneficial.
5.3 Summary of Proposed Government Interventions according to vehicle type in Phase 1-
Phase 1- Metropolitan
5.4 Critical Enablers for Electric Vehicles Implementation
The pyramid depicts a step-by-step approach of EV adoption strategy by the government / go-to-market strategy.
1. Significant incentives to support EV technology: Since a major chunk of the cost of the EV is associated with the kind of battery in place, there is a need for the government to increase expenditure on research and development on the EV technology. Range anxiety and battery cost are two issues that hinder the fast adoption of EVs. However, new battery technologies are poised to solve both issues at once. Lithium-ion batteries have become the industry standard over the two decades of EV development. New technologies are being tested, such as graphene-based technologies, which charge in 15 seconds. These are expected to supplement, not replace, traditional EV batteries. Therefore, there is a need to increase the budget for adoption of such technologies. This will not only enhance faster adoption of EVs but also make the country more self-reliant. (Driivz, 2018)
2. Broad Consumer Adoption Potential: The Government needs to assess and capitalise on the willing consumers, business owners, commercial drivers (two wheelers, three wheelers, four wheelers) who want to transition to electronic technology. The survey conducted reveals that people from urban ecosystems have a positive attitude towards adoption of electric vehicles as they believe in its potential for bettering the environment. The remaining consumer segment who are either unaware or unwilling to change to EVs need to be nudged towards the desired behavior. The government can do this via large scale awareness campaigns to make the general population aware. The unwilling segment can be incentivised, by dissemination of the personal benefits accruing out of vehicle change, such as the change being cost effective and also vehicle experience being smoother and efficient.
This fear, uncertainty and doubt can be cleared through customer education where in addition to the obvious benefits such as anti-pollution and cost efficiency there are other benefits and myths mitigated. Such as battery longevity that surround EV usage. Return on investment and cost of ownership benefits of EVs as opposed to conventional vehicles should be demonstrated during these interactions. Customers must also be educated about SOPs offered by the government, such as the proposal that exempts EVs from road tax during vehicle registration.
3. Commercial infrastructure for charging stations: Despite Government directives, guidelines and deadlines, setting up sufficient EV charging facilities across India is a time-intensive exercise. To this end, the Government should take on a first mover role for deployment and management of pilot units across India. (Shelke, 2019) For this a fully functional charging infrastructure to support EV adoption, a phase wise city level deployment plan must be made. Deployment can begin with charger installation at existing fuel retail stations. Additionally, fast charging stations can be set up at the bus depots, workshops, etc. and swapping stations can be set up at the intermittent halts for intracity and intercity buses. Charging/swapping stations for HDVs shall be deployed at intermittent halts such as food joints on highways, transport nagars and places where they are parked.
Since Public charging infrastructure deployment faces a major challenge of land unavailability, government and public-sector agencies are ideally placed to mitigate this risk through collaborations with private players. Electric mobility is expected to be a city-led development, wherein various city-level stakeholders should be collaborating to reduce risks and improve overall operational efficiency. This is likely to be based on pre-assessments of land, availability of power, civil works for pedestal and foundations, installation of transformers, line, terminations and packaged substations constituting of distribution boards, isolators, protection devices and metering equipment.
For incentivizing the setting up of charging infrastructure, the government has allotted Rs. 1,000 crore for charging infrastructure under the FAME II policy. Charging stations should be set up in phases with the first phase focusing on megacities and national highways. The subsequent phases can focus on million-plus cities, state capitals, UTs and smart cities. For the same, the state governments can work to identify locations for charging station facilities under the smart city project. For this, capital subsidies of up to 25% on small charging stations up to an amount of 0.15 million for the first 300 chargers or so can be beneficial. Reimbursement of the SGST and exemption from electricity tax to charging station private players will also be a helpful step. (IIT Madras, 2019, #)
4. Demand incentives: Incentives, financial or non-financial go a long way to foster consumers in purchasing an Electric Vehicle. High EV prices are directly attributable to the demand-supply factor and lack substantial domestic manufacturing base. Indian Buyers look forward to attractive prices. For starters, we can take the example of the incentive of Rs. 30,000 per e-scooter, which is a huge step to ramp up the sales of two-wheeled electric vehicles in Delhi. Similar incentives can be adopted across the country.
Further, to encourage the purchase of electric mobility, the government has permitted the sales of EVs in India without a battery which no other country has allowed so far. The step is taken with the objective of reducing the cost of electric vehicles, as the battery is the costliest part of any EV. Furthermore, for those who plan to buy EVs for commercial usages, loans are made available at very low interest rates, and registration and road tax fees are being waived off, thereby encouraging people to invest in this sector. These financial incentives are valid for both battery swapping and fixed charging vehicles. (IIT Madras, 2019, #)
5. Pilot rollout in metros: Initial deployment in metropolitan cities to create a demonstration value. Urban ecosystems are going to be the early adopters of the Electric vehicle space and then expanding it to smaller towns and tier-2 areas.
Metro cities could lead the way especially due to mass mobility requirements and comparably high disposable incomes.
● City-level systems for building charging infrastructures could be an incentive to start in the metropolitan cities of India.
● Easy access for land to set up EV manufacturing infrastructures by the state governments will act as facilitators to increase demand.
● Demand for electric vehicles shall be driven by reduced total cost of ownership (TCO) and deployment of chargers at strategic locations in a city to reduce the range anxiety and grid augmentation planning so as to ensure a reliable power supply for charging batteries. (IIT Madras, 2019, #)
6. Expansion to other geographies: The subsequent phases can focus on million-plus cities, state capitals, UTs and smart cities. Rollout in these geographies will depend on the response of the plan carried out in the pilot phase. The deployment of EV charging stations across major highways shall also lead to the penetration of the EVs in tier 2 and then subsequently tier 3 cities. The step-by-step process can ultimately lead to the entire India possessing good EV infrastructure.
This paper has been instrumental in highlighting that the large scale adoption of EVs in the Indian subcontinent is a hopeful endeavour. To actualise the goal of EV transition, there has to be strategic policy interventions to incentivise state governments, manufacturers, consumers, and businesses to lead the transition. These are the key points that necessitate government action:
1. The Dual Credits Policy, adopted by China, can be extrapolated to the Indian context. The policy gives credits to automobile manufacturers for producing vehicles that consume a fuel under a set amount (CAFC Credits), and for manufacturing Electric Vehicles (NEVs). This policy has led to an increase in NEV manufacturing and sales, promotion of indigenous auto manufacturers, and reducing average fuel consumption leading to lower carbon footprints.
2. The fear, uncertainty and doubt surrounding this new EV technology needs to be cleared through customer education. This can be done through target focused campaigning and capitalising on the positive attitude towards EVs. The government can focus on dissemination of specifics of EV technology in order to facilitate behavioural change.
3. Incentivising widespread adoption of EVs through pricing incentives such as taxes, subsidies and scrappage policy. The Government should consider tier one cities and two wheelers as a point of entry in the dialogue surrounding EVs. The focus should be to make EVS cost effective and affordable for the Indian masses.
4. Lastly, increasing access to charging stations is absolutely necessary for sustenance of an Electric Vehicle ecosystem. This will allow the EV industry to grow and prosper as consumers shall create more demand with better EV infrastructure. Pilot projects to deploy charging stations across national highways need to be allocated money. Such projects will lead to the eventual penetration of EV technology in the rural landscape as well. The Government should take on a first mover role for deployment and management of pilot units across India.
Thus, for developing a viable ecosystem for sustenance of electric vehicles it is absolutely necessary to focus on different stakeholders ranging for those who are responsible for manufacturing EVs and developing its technology as well as consumers/ businesses which shall be buying and using the technology. The government needs to intervene in both these sides simultaneously for EV adoption.
Meet The Thought Leaders
Shatakshi Sharma has been a management consultant with BCG and is Co- Founder of Global Governance Initiative with national facilitation of award- Economic Times The Most Promising Women Leader Award, 2021.
Prior to graduate school at ISB, she was Strategic Advisor with the Government of India where she drove good governance initiatives. She was also felicitated with a National Young Achiever Award for Nation Building. She is a part time blogger on her famous series-MBA in 2 minutes.
Naman Shrivastava is the Co-Founder of Global Governance Initiative. He has previously worked as a Strategy Consultant in the Government of India and is working at the United Nations - Office of Internal Oversight Services. Naman is also a recipient of the prestigious Harry Ratliffe Memorial Prize - awarded by the Fletcher Alumni of Color Executive Board. He has been part of speaking engagements at International forums such as the World Economic Forum, UN South-South Cooperation etc. His experience has been at the intersection of Management Consulting, Political Consulting, and Social entrepreneurship
Alok Singh is a graduate of IIT Delhi and works in the consulting domain. He primarily focuses on digitalization assignments to improve the efficiency of different processes. He has worked in Health Care, Industrial Goods, and Financial sectors and is currently working with Boston Consulting Group.
Meet The Authors (GGI Fellows)
Agnidh is a freshman at Ashoka University currently pursuing his undergraduate degree in Economics and Finance. An incoming Strategy and Business Development Intern at PATH, he is the president at GGI Impact Lab Ashoka University and serves as a financial analyst for Bodhi Capital, India's first undergraduate investment firm.
Disha Jain is a final year Chemical engineering student at BITS Pilani. She is currently interning at InMobi, and is an incoming analyst at Bain Capability Network.
Rhea Sinha is currently pursuing her undergraduate degree in Economics and Political Science from St. Stephen’s College, University of Delhi.
Sulekha Agarwal is a Delhi based Commercial Lawyer. SHe holds a Master in International Law from the Graduate Institute, Geneva and a B.L.S.,LL.B from University of Mumbai.
Trisha Reddy is a Production Engineering and Economics graduate from NIT Trichy. Being passionate about the energy and mobility sectors, she worked with ExxonMobil for 2 years and is now working with Dunzo.
If you are interested to apply to GGI Impact Fellowship, you can access our application link here.
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