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Getting charged

Two and three-wheelers to spearhead electric vehicle adoption


Executive summary


India has committed to facilitating adoption of electric vehicles (EVs) so that they account for 30% of all new vehicle sales by 2030, in line with the global trend.


But is the ecosystem charged up to make that big leap?


An analysis by CRISIL Research shows that while the second instalment of the government’s policy – Faster Adoption and Manufacturing of Electric Vehicles in India (FAME II) – and numerous efficiency and emission regulations have created the policy push for EVs, they will hit the roads slower than envisaged over the next five years.


What’s more, adoption will vary across segments, with e-two- and three-wheelers continuing to hold pole position.


That’s because the enabling ecosystem, so critical for the successful adoption of EVs in India, is not quite in place yet, while vehicle manufacturers have been slow to provide the supply-side push too. India is behind on the key global growth drivers for EV sales: battery prices and manufacturing, demand incentives and the charging infrastructure.


Unlike countries that manufacture lithium ion batteries and, hence, enjoy a cost advantage, battery prices in India continue to be at a premium. Hence, despite demand incentives, the cost of acquisition and operations of EVs will remain unfavourable for many vehicle categories, thereby constraining demand for the next five years.


The constraints on the supply side are that original equipment manufacturers (OEMs) are still grappling with a chicken-and-egg conundrum: will battery capacity come up at scale first and help reduce EV costs, or will EV volumes have to grow first. As a result, consumers do not have enough models to choose from as yet, and the public charging infrastructure is still to fall in place.


Therefore, execution of the government’s EV policy roadmap – which encompasses everything from demand incentives to battery manufacturing capacity to charging infrastructure – holds the key to faster adoption of EVs in India. In the immediate term, the government could do well to action the phased manufacturing plan (PMP) to drive down battery prices and accelerate the development of the charging infrastructure.


CRISIL Research estimates that e-two- and three-wheelers, which already enjoy better cost economics compared with their internal combustion engine (ICE) counterparts, will continue to zoom ahead. By fiscal 2024, EV penetration is expected to improve to 12-17% of new vehicle sales for e-two-wheelers and a whopping 43-48% for e-autos. However, offtake of passenger cars for personal mobility will be subdued given poor cost economics and the lack of demand incentives under FAME II, though cab fleets will move up a gear. As for public mobility, while the cost economics will remain unfavourable for e-buses, government subsidies will ensure that they hit the road and set the ball – or shall we say, wheels – rolling. Hence, CRISIL Research believes that the gradual adoption of EVs will provide component manufacturers enough time to realign their operations over the next five years even as the low penetration levels will cushion the eventual reduction in service revenues for dealers.