EVs poised to take off, but challenges remain

The world’s richest man Elon Musk’s proposed entry into India with the Tesla Model 3 has made the electric vehicle space more exciting. The industry feels that with the Union Budget just around the corner and the demand for electric vehicles (EVs) slowly picking up, 2021 is going to be a better year for them, especially for the electric two-wheelers (E2W) since they are often considered a low-hanging fruit for EV adoption.

The EV sector has been on the government's mind. In order to make EV adoption more seamless, the government floated its Faster Adoption and Manufacturing of Hybrid and EV (FAME) scheme first in 2015, with an initial outlay of $130 million worth of subsidies for electric vehicles. In its second iteration in 2019, the government scaled up the subsidy outlay for EVs to $1.4 billion. Under FAME II, the government also set up a target of putting at least 1 million high-speed electric two-wheelers on the road by March 2022.

However, industry insiders feel that, as far as EVs are concerned, India still has a long way to go, despite the government's push.

According to the Society of Manufacturers of Electric Vehicles (SMEV), the E2W industry clocked 25,735 sales in calendar year 2020, as compared to 27,224 units sold in the previous year. SMEV says that against the target of 1 million in 36 months ending March 22, only 31,813 bikes have been sold under FAME till now and the government's “ambitious target” is nowhere in sight.

The cumulative sales since January 2019 are 52,959 out of which 31,813 vehicles were given subsidy under the FAME II. “The FAME II scheme had some good points and laudable objectives but came with so many strings attached, most of them introduced prematurely or unnecessarily, that led to the achievement of only 4% of the stated targets. The scheme could not attract the customers to shift from the polluting petrol bikes to electric two-wheelers, mainly because the preconditions and qualification criteria of FAME II made the bikes unaffordable to the mass market customer despite the subsidy,” says Sohinder Gill, director general, SMEV.

Gill argues that the government ought to come up with corrective measures that would help the industry achieve the envisaged target of 10 lakh electric two-wheelers. He, however, points out that despite the setback, the E2W industry is seeing a positive sentiment and a very high level of interest from the customers, and if FAME II is rejigged to remove the needless handicaps, the adoption can grow exponentially in a short time. That could not only help achieve the stated objective, it can also catalyse major investments into "Made in India" products and locally sourced components.

Similarly, Ather Energy’s CEO and co-founder, Tarun Mehta, too has high hopes from FAME II. “Any policy that comes into play takes a few years to stabilize; 2019 and 2020 saw the FAME II policy stabilising and paved the way for traditional automakers to introduce new and powerful vehicles which led to demand generation, and 2021 will see momentum in scale and capacity growth by OEMs,” he tells Fortune India.

Mehta adds that government policies such as FAME II have played an important part in this, by incentivising high-performing products. “If you look at petrol two-wheelers, at every price point consumers have multiple options which is not the case in electric two-wheelers. Because of FAME II and its intent, many players have introduced or are introducing high performance E2W. With traditional automakers entering the market, it has also prompted consumers to take EVs more seriously. EVs are no longer a compromise thereby giving birth to a new set of consumers making the entire category more aspirational,” he says.

SMEV, too, feels that the industry is on a growth curve and that the government’s intent in pushing for EVs is indeed laudable. There have been many positive steps by the central and state governments, such as the announcement to support battery manufacturing in the country with an outlay of ₹18,000 crore and allowing the selling of E2W without battery, entry of established players in the market, increase in citizens’ interest in green vehicles, startups foraying into the industry with innovative solutions like financing, last-mile delivery, charging etc. “The government has continued its support to the aligned industry. Perhaps the only vital missing link is a robust, customer-friendly FAME II policy,” SMEV’s Gill adds.

The pandemic’s EV push

Industry veterans feel that the pandemic did make consumers realise the importance of a green and clean environment—and the fact that this could be sustained with the use of electric vehicles for mobility. “The awareness and realisation did result in multiple dealer requests. In fact, we have received around 12,000 requests so far from around the country, along with test ride requests, and pre-orders for the products,” Ather Energy’s Mehta points out.

He argues how his company’s new factory is up and running at Hosur, Tamil Nadu, and can be scaled up to a capacity of half a million scooters a year. “We have already crossed the pre-Covid-19 levels in terms of demand, walk-in to our experience centers, and even test ride requests. A new segment of consumers has been born which is now considering EV as a serious contender while making an automobile purchase. In 2021, we see EVs becoming more mainstream and becoming a stronger pillar in the Make in India initiative,” he says.

Mehta acknowledges that because of the pandemic, supply chain and manufacturing was affected severely for many OEMs because of their dependence on China which resulted in a delay in addressing the demand and lack of sales last year. “An industry's performance and its supporting policies must be measured as a whole and under the conditions that the world was operating in,” he adds.

However, if there is one aspect of the entire EV sector that industry insiders feel less optimistic about, it is about the charging infrastructure. Mehta argues that despite the government’s push in building infrastructure at public places, it isn’t adequate. He says home charging should be given an impetus.

“For average consumers, most of the charging for an EV happens at home, but EV enthusiasts still face challenges because there are no dedicated parking spots for two-wheelers leading them to have second thoughts on making the switch. Residential Welfare Associations and policy makers should address these basic concerns which will help generate more demand for EVs. Though these policies have been put in place, ensuring that they are implemented and not hindered is necessary,” he adds. In the last quarter, Ather Energy reported a 30% increase in sales. For Mehta, 2020 has largely been positive in terms of awareness and 2021 will be all about scale and distribution.

Other E2W makers too are optimistic about the industry’s growth this year. “2021 can prove to be a revolutionary year for the electric vehicle industry. We have high hopes from the Union Budget this year and are optimistic that the government will continue to take the right steps to place India on the global EV map,” says Jeetender Sharma, founder & managing director, Okinawa Autotech.

Expectations from the Budget

The industry feels that the Budget could help kick off the demand for EVs in India. Vehicle and battery manufacturers say that a holistic approach is required to create a thriving ecosystem for EVs and cement India’s position as a global EV hub offering abundant opportunities for growth and attracting huge investments for further innovation. “We urge the finance minister to reconsider the current taxation framework applicable on raw material and the final product in case of EVs. While the GST input on raw material is 18%, the tax on outward supplies currently stands at 5%, leading to an implicit inverted duty structure for us [manufacturers]. This move could help in optimizing the cash flows,” Sharma says.

Ather Energy’s Mehta feels that while the demand for EVs in India was always there, it needed strong, well-performing products that are viable alternatives to ICE vehicles to unlock this demand.

“We would like to see policies around creating supplier parks at concessional rates, supplier side incentives for import of raw materials, and incentives around capex and R&D investments in India which will go a long way in building up the supplier ecosystem in India. We also recommend creating a pool of capital that startups in this sector can tap into for long-term debt. It will go a long way in helping accelerate capacity creation in the industry. Increasingly, usage of vehicles is shifting to models like lease/pay-as-you-use etc. and we recommend supporting these with existing incentive programs,” he argues.

Not just two-wheelers, commercial vehicle makers too feel that policy support, such as FAME II, helps push the country towards enabling an indigenous supplier and manufacturing ecosystem and be self-reliant in EVs. “It will also help in tackling the trade deficits and reduce our overall import dependence in EV components. However, at this juncture, such supportive policies should allow reliefs and relaxations to incentivise localisation of components,” points out Saurav Kumar, CEO, Euler Motors, which is currently running pilots with major e-commerce companies such as BigBasket, EcomExpress, and Udaan in Delhi-NCR for their last mile delivery requirements.

Kumar argues that his priorities for the moment will be to drive demand and enable faster transition to EVs. “We need an ecosystem that helps to produce critical components and batteries of electric vehicles locally, which will help to reduce vehicle costs. Also, in the commercial segment, OEMs should focus on manufacturing high performance vehicles to make them a preferred choice over ICEs. Additional incentives by the government to increase domestic output will make EVs more competitive,” he says.

The perception within the industry is that the pandemic has acted as a kind of a double-edged sword where, on one hand, it hit the EV supplier and component manufacturing, and on the other hand, frontlined EVs for environment conservation. “This will provide the much needed push to EVs in India and we feel with the right benefits such policies will put the industry in overdrive. The next few years will witness more companies innovating to build a self-sufficient EV ecosystem for India,” Kumar says.