Chinese chokehold over e-bus market raises red flags

The humongous growth opportunity in India's electric bus market has set the ball rolling not just for established domestic ICE makers but also for newer players such as the Pune-based EKA Mobility. However, the growing dominance of Chinese automotive firms in the Indian e-bus market through local JVs is proving to be a growing concern for homegrown players.

To get a sense of China's dominance a glance at FY23 numbers is good enough. Of the 1,919 units sold, PMI Electro Mobility emerged as the leader with 31.47% market share, followed by Olectra Greentech at 23.14%. Both these companies have a Chinese partner — PMI Electro Mobility Solutions has a tie up with Beiqi Foton Motor Co, while Olectra Greentech has a collaboration with BYD, China's biggest EV maker. Domestic players are at the bottom of the pecking order with Switch Mobility, a subsidiary of Ashok Leyland, cornering 19.85% market share, JBM Auto 11.83%, Tata Motors 6.88% and other smaller players comprising 6.83%.

The domestic players' concerns come against the growing opportunity in the e-bus segment with the Centre in August paving the way for the introduction of 10,000 e-buses through a public-private partnership model across public transportation networks in 169 cities. The initiative (PM-e-Bus-Sewa) is estimated to cost ₹57,613 crore, of which the Centre has committed a financial support of ₹20,000 crore over 10 years, or up to March 2037.

EKA Mobility, a subsidiary of Pune-based Pinnacle Industries, is a recent entrant in the e-bus space having bagged an order from the Mira-Bhayandar Municipal Corporation (Maharashtra) for 57 buses, taking its overall order-book to 500 buses. However, Sudhir Mehta, founder and CMD of Pinnacle Industries, an integrated commercial vehicle seating, interiors and specialty vehicles company, emphasises on the strategic implication of India's growing dependence on Chinese bus manufacturers, highlighting the underlying risks associated with the integration of Chinese software in these buses. His concerns revolve around the critical element of control — specifically, the integral vehicle control software. "In every electric vehicle company, the vehicle control software is what essentially controls the vehicle," says Mehta of EKA, in which Dutch company VDL has a minority stake.

EKA, like several Indian bus makers, have ensured that the software resides within the country's borders, emphasising the significance of having complete access and control over the source code. "We have completely designed and built the e-bus in India," points out Mehta, reiterating the autonomy and security.

Contrasting this approach, he points out the concerning practices of Chinese companies who provide a 'black box' to their Indian partners, thus retaining control over the source code. "They don't share the source code and it is completely controlled by the Chinese partner," he explains, outlining the potential vulnerabilities the arrangement presents, particularly in the context of geopolitical tensions. "Technically, if there is a war or a conflict, the buses can be shut off remotely. They can even make it go haywire. So, I don't know why as a country we are allowing that," Mehta remarks, urging for a more comprehensive understanding of the security risks associated with foreign technology integrations in the domestic electric bus market.

The concerns over "absolute" control of the local partner are not without merit. For instance, Sharat Chandra, MD of Olectra Greentech, in the recent earnings call mentioned that the introduction of safety norms had resulted in a delay as the testing certifications could not be carried out in India. "Unfortunately, we do not have the testing facilities in India. So, it has to be done on an online virtual basis from China and that is the reason it was taking more time, and this is beyond our control," Chandra tells analysts.

Mehta highlights the potential dangers such practices could pose, noting: "One, all data of where the vehicle is going, what is the movement of the vehicle is accessible to them [the Chinese company]. Number two, let's say, tomorrow, they want to put a stop to the vehicle. Remotely they can lock the vehicle because they have access to the software. The Chinese don't share the source code." The source code refers to a collection of software commands aimed at running a specific programme, enabling it to fulfil the intended goals set by the programmer. The act of "sharing source code" can encompass a spectrum of access ranging from comprehensive to limited.

According to a study by consulting firm McKinsey & Company, having advanced electrical and electronic capabilities and the capacity to implement design updates throughout the electric vehicle life cycle are increasingly imperative to maintain competitiveness. While current ICE vehicles have over 150 million lines or more of code as more electronics and software gets embedded, EVs are expected to have more than triple the lines of code as technology improves and advanced autonomous driving becomes all-pervasive.

Mehta advocates strict measures to ensure that the vehicle control software and intellectual property (IP) resides within the country's borders. "As a country, we need to ensure that vehicle control software, the IP, resides in India," Mehta asserts, underlining the crucial role of the government in this process.

The situation though is complex, considering that the Centre might not be able to mandate the sharing of proprietary technology, which is a commercial arrangement between two private companies. A feasible alternative, however, is possible where the government, by virtue of being the biggest buyer of buses for public transport, can control the outcome at the tender stage. "The government, as part of the tender process, can mandate that they will only qualify OEMs which have access to their own vehicle control software, then automatically things will fall in place."

Furthermore, Mehta emphasises the need for a level playing field, cautioning against the repercussions of allowing unfair competition. Under the e-bus scheme, the Centre will offer the bus operator central assistance per km of ₹24 for a standard bus, ₹22 for a midi bus and 20 for mini bus. However, Mehta believes aggressive bids by Chinese JVs puts domestic players at a disadvantage. "The electric bus market is a hundred times bigger than India's, so a lot of dumping of electric vehicles by China is happening globally, including in markets such as India," he cautions. For instance, the cost of an e-bus is estimated at around ₹1.25-1.5 crore, but the Chinese players can bring prices far below (around ₹95 lakh per bus) substantially lower that what homegrown Indian players can afford, largely owing to their access to low-cost funds and subsidies from Beijing. Between 2009 and 2022, the government gave away RMB (renminbi) 200 billion ($29 billion) as subsidies and tax breaks. What should worry domestic EV makers is that owing to flagging economic growth and auto sales, in June this year, China rolled out yet another RMB 520 billion ($72.3 billion) tax incentive package for four years. This is China's largest tax incentive yet for the automotive sector.

Against such a backdrop, Mehta stresses the importance of promoting domestic manufacturing, even at a slightly higher initial cost. India is so cost competitive that the selling price has to be based on steady state component cost. "EVs are going to be fundamentally profitable, but to a great extent, a lot of value-addition is done outside because you are relying on component suppliers. Automotive is a game of volumes. If you do not get volumes, you're not going to make a lot of money," says Mehta. In other words, Mehta wants the government to be supportive of homegrown EV makers till domestic makers volumes hit a critical scale and the industry is able to create a strong local supply chain.