The emerging global trend of urban sustainability has recently extended to India, one of the world’s largest economies and auto markets. The era of e-mobility in India is lead by several progressive trends, namely, electrification, shared mobility, connectivity and autonomous driving. These trends are leading the electric disruption globally, resulting in expectations for markets shifts, changes in mobility behaviour and new ways of collaboration and competition.
Electrification is a trend that has emerged as a preventive measure to the alarmingly high pollution levels and rising temperatures. Consequently, the e-mobility trend has enjoyed impressive developments. Numerous car makers worldwide have been racing to release hybrid and electric vehicles, creating a whole new array of electric, plug-in hybrid electric and hybrid electric vehicles.
India’s e-mobility ambitions
Considering India’s large, populated cities and traffic density, a proper electrification strategy is of great importance and urgency. In light of this, India has expressed particular ambitions towards the adoption of electric vehicles. According to former Power Minister, Piyush Goyal, India plans to stop selling traditional combustion engines running on petrol or diesel, by 2030. Nevertheless, the market penetration of EVs in the country is still low currently, while future developments depend on numerous business and institutional factors.
McKinsey has identified four such influential factors that could guide India’s electrification. These include regulations and incentives, technology, infrastructure and consumer demand. Regulations and incentives refer to a supportive ecosystem that will establish strict rules on carbon emissions and strategic goals, leading to a higher adoption of EVs. The technology factor focuses on reduction of battery costs, increases in efficiency and improvements in driving range, resulting in more accessible and attractive electric options. Easy and affordable access to charging infrastructure is of paramount importance for a mobile and connected future. Monitoring customer demand and responding to wants and needs are important factors influencing demand for EVs.
In addition to these, India’s e-mobility strategy is dependent on the activities of three crucial stakeholders. In India’s case, these players represent the government, infrastructure companies and the automotive industry, as key drivers of the transition to sustainable urban mobility.
The Indian government plays a decisive role in guiding the electrification, aiming to meet emission targets and reduce dependence on crude oil imports. In order to reach these goals, the government needs to focus on three areas, including environmental targets and strategic intent, incentives and subsidies, and a long-term direction.
Environmental targets and strategic intent
Based on the Paris Climate Agreement, the Indian government’s current CO2 emission target is to maintain 113 g/km by 2021. The average fuel efficiency target, in line with the Corporate Average Fuel Consumption standard, is 22 km/litre by 2022. Moreover, the government’s long term strategic focus includes reduction of crude oil imports and implied dependence on specific trade partners.
To tackle these, consistent and stable policy on emission regulations could be reached through strategic targets and crude oil substitution, as well as via consultation with guidance committees. In essence, the government will need to define the regulations and targets, while the industry will choose the technologies.
Incentives and subsidies
Adoption of EVs could be facilitated by a set of upfront or recurring incentives, tax breaks, funding for infrastructure and innovation, support for technology, and skills development. The Indian government has already initiated an incentive scheme in 2015. The Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) India scheme was launched as a supportive measure for the development of the hybrid and EV market.
The implementation of e-mobility is progressing slowly, as only 25% of the subsidies have been used by August 2017. Going forward, all relevant government stakeholders will have to create a comprehensive set of EV guidelines. A list of parameters for product inclusion or exclusion from the FAME scheme would help companies and speed up the utilisation of funds. All ministries will also require a clear mandate and goal for each department, leading to predictable EV policies.
Long-term EV goals could secure sustainable EV penetration and define a road map for the industry. India’s current EV adoption commitment to the Clean Energy Ministerial has a target of 30% new sales of electric passenger cars, light commercial vans, buses and trucks, by 2030. This long-term goal could be achieved by setting short-term milestones for tracking progress.
A viable option for the government would be to develop an EV road map by collaborating with industry associations. There is some collaboration currently, such as the project for application of lithium-ion technology for surface transport vehicles, conducted by the Automotive Research Association of India, the Indian Space Research Organisation, and Bharat Heavy Electricals Limited. Nonetheless, a road map supportive of the e-mobility ecosystem requires more work.
Power, fuel and charging infrastructure companies
Infrastructure companies are vital for the EV ecosystem. These include oil and gas companies, power companies, charging equipment manufacturers, swappable battery infrastructure and electric mobility solutions providers. Indian companies that operate in these industries need to work on three key areas, namely alternative business models, power generation and grids, and charging infrastructure.
Alternative business models
The global EV industry could displace demand for 2 million barrels of oil per day between 2025 and 2030. While a threat to oil marketing companies (OMC), the trend is an opportunity for EV infrastructure providers. For example, Indian companies like OMCs, power generation and transmission companies, and OEMs could go into alternative businesses.
Indian OEMs are already working with e-hailing companies on the inclusion of charging infrastructure services revenues. Various OEMs have recently connected with a taxi company to provide e-mobility services, like e-taxis, e-buses, e-rickshaws and autos, while other OEMs are monetising charging solutions. Transmission and distribution asset companies could offer charging services to EVs, thus monetising their capacity during the transition to sustainable mobility.
Power generation and grids
EVs in India are expected to consume only 3-4% of the current power generation capacity, even when holding the present 30% EV adoption rate constant. India’s government will need to continuously identify emerging concerns related to possible unaccounted requirement on the existing grids, as the market grows and new models appear on the roads.
India’s EV adoption could improve with robust charging infrastructure. In 2016, India had less than 500 EV charging stations located in major cities like Delhi, Mumbai, Bengaluru and Kolkata. Increases in EVs sales will lead to requirements for more chargers. For example, a city like Delhi would require approximately 300,000 chargers by 2030, assuming 30 % EV penetration in an estimated car population of 10 million. The primary use of fast chargers would stem from taxis, estimated at 12% of total. Installing additional chargers would come at a significant investment of $1 – 1.5 billion.
However, fast charging infrastructure is still not a lucrative business and requires up-front investments in fixed and operating costs. The additional evolution of battery costs, driving range and charging technology will create new factors that will prolong the profitability of such businesses in India to 2025.
Therefore, a key challenge for India’s e-mobility ecosystem would be expansion of the charging networks in the following 10 years. In light of this, India has already taken measures, such as a pledge to install 1,000 EV charging stations in the next 4-5 years.
Besides influencing sustainable mobility and pollution targets, electrification threatens the cost structure of traditional auto makers. In the future, e-mobility could lead to a shrinking market for ICE components, such as engines and transmission, while increasing demand for components and systems related to EV motors and batteries, charging technology, power electronics and EV software. Thus, Indian automotive companies could embrace the disruption by changing the ecosystem mix, building new competencies, improving performance and building scale.
New ecosystem mix
The electric car makers could influence the balance of the industry. As OEMs and suppliers compete for new sources of value, new partnerships might be forged, such as joint ventures of global tier-1 auto suppliers into EV battery cell makers. Indian incumbents will be looking out for opportunities to protect and expand their market shares. Cases of cross-sectional resilience would include investments in innovative start-ups, with complementary EV technology.
Recently, a leading two-wheeler manufacturer invested in a start-up that will lead to production of affordable electric two-wheelers. Another hardware start-up developed a premium scooter that uses in-house lithium-ion battery and can charge up to 80% in under one hour.
The greater acceptance of EVs in India would create a higher requirement for access to new technical talent in software and power electronics, and across commercial and supply chain functions. There could also be a need to build new technology assets, such as testing facilities, rapid prototyping, and product/UI design capabilities. Hence, Indian auto companies will have to asses the skills gap and build EV competencies internally or acquire them.
Automotive and EV infrastructure companies will likely need to reduce battery costs and charging time, while increasing EV driving ranges. Technology and scale improvements are already influencing the global decline in battery prices, which could affect prices in India. In addition, Indian companies could develop alternative ways for efficient and convenient charging, analogous to the ease of refuelling traditional cars. For example, Indian companies could develop solutions like battery swapping.
Indian EV infrastructure companies will need to develop strategies for scaling existing technologies, to ensure feasible manufacturing and profitable business. Current estimates assume that 3-10 GWh of cell production facility are required to achieve scale. Based on the conservative estimate of 10GWh, 200,000-500,000 electric four-wheelers (10-20 kWh) and 1.5-2 million electric two-wheelers (3 kWh) would need to be sold in one year, in order to achieve the appropriate scale. These forecasts are achievable in India, even after excluding the demand for replacement batteries.
Even though e-mobility in India is significantly lagging behind Western countries, the country is capable to guide a successful transition to sustainable urban mobility by 2030.