Can Fame II Bring Fame To EVs?

India is often touted as the next big  electric vehicle (EV) market — set to follow China’s lead. There is a consensus that we need EVs more than ever because they are efficient, emit zero pollution and when adopted by the masses, will contribute to saving billions of taxpayers’ money that is spent on importing fossil fuels. In fact, as per a report by NITI Aayog, EVs can cut India’s energy demand by 64 per cent and carbon emissions by 37 per cent by 2030.

The National Electric Mobility Mission Plan (NEMMP) 2020, announced in 2013, maintains that EVs could achieve national fuel security if India could sell 6-7 million hybrid and electric vehicles year-on-year starting 2020. That is, of course, with government providing fiscal and monetary incentives to manufacturers. The NEMMP envisages a saving of 9,500 million litres of crude oil equivalent to Rs 62,000 crore.

In the run-up to the rollout of FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) India’s second phase — to boost adoption of energy-efficient vehicles —  in a month’s time, the auto industry is riddled with apprehensions and doubts over the long-term roadmap that the government is yet to prepare. The industry fears that lack of charging infrastructure and a robust ecosystem are the biggest stumbling blocks to ensuring EVs techno-commercial feasibility.

Though the auto industry hasn’t admitted it, it is confused, anxious, and keen to know the direction the policy framework will take and its impact on them. The anxiety has grown since February 15, after transport minister Nitin Gadkari dismissed the need for a policy on EV (and any fiscal incentives to manufacturers) and instead supported an ‘action plan’ to encourage the manufacture and use of EVs.

E-Buses take the pole position
It is widely believed that electrification of road transport will move into top gear in the second half of 2020s, thanks to tumbling battery prices and larger-scale manufacturing. In fact, according to the latest long-term forecast from Bloomberg New Energy Finance (BNEF), India’s power and transport sectors are expected to fundamentally change by mid-century with its economic transformation, and the advance of e-buses will be even more rapid than electric cars.
 “India is often touted as the next big EV market, set to follow China’s lead,” says Ashish Sethia, Head of Research, Asia Pacific for BNEF. “However, low average vehicle (petrol/diesel) prices will inhibit EV uptake for the next 10 years. After 2030, we expect EV sales in India to accelerate with increased affordability, as well as the government’s efforts to ensure universal access to electricity to lower challenges with charging infrastructure.”


Says Christie Fernandez, Founder of Sooorya Electrical Vehicles, “EVs have lower operational costs, which can result in reduced fares benefiting a larger population, especially at the bottom of the pyramid. We have seen this happen with environment-friendly e-rickshaws transporting millions of people every day at an affordable cost. Another benefit is that charging infrastructure requirements for commercial operations can be defined, resulting in minimal charging stations required for operations.”

The man of the hour, as far as the EV policy framework goes, is the vice-chairman of policy think tank NITI Aayog, Rajiv Kumar. NITI Aayog is preparing a blueprint for the transportation sector jointly with state governments to help achieve goals of electric mobility, wider renewable energy use and job creation. When asked to comment on EVs, Kumar termed mobility as the new disruptor: “There are basically three objectives (for promoting EVs): to minimise carbon footprint, maximise public welfare, and generate maximum jobs and growth. It will change everything that we have known so far. We should not focus on personal or individual mobility in the EV space, but more on public transport.”  

FAME-II, a Boon or a bane?
A highly placed source, on condition of anonymity, told BW Businessworld that the second phase of FAME-II envisages a financial support of Rs 6,000 crore to automakers for three years from the date of announcement of the scheme. It is widely believed that the schemes (under FAME-II) will be announced around NITI Aayog’s Global Mobility Summit, to be held on 7-8 September ’18 in New Delhi. The government has set a modest target of 550,000 units of EVs for a three-year timeline starting the day of FAME-II’s implementation.

The Society of Indian Automobile Manufacturers (SIAM) is the first to admit that the framework and the fine print of FAME-II has not been widely discussed with the auto industry and therefore there is a lot of speculation around it.

 
“In FAME-II, incentives to private purchases will get slightly curtailed or totally pruned. They (government) are going to be focusing on only public transport. As far as cars are concerned, if taxi aggregators are purchasing them for public transport utilisation, then they may be supporting it. But no incentives to private purchases of cars. Only private purchases of two-wheelers may continue to get subsidy. This is something which has not been communicated to us, but has been part of an informal discussion,” says Vishnu Mathur, Director General, SIAM.  

“We cannot follow a similar policy as in developed markets. There, car manufacturers are making products (electric cars) for consumers. In India, the government can start the ball rolling for car manufacturers by providing certain incentives to taxi aggregators and fleet buyers. And maybe a few years down the line, the government can give benefits to the end consumer in the form of scrappage schemes, etc. We don’t have any subsidies on diesel or petrol cars. So the government can’t control crude oil prices. But what it can definitely do is try to minimise the consumption of petrol and diesel so that it doesn’t impact the economy directly from crude oil prices,” says Puneet Gupta, Associated Director of I.H.S Automotive, a sales forecasting and market research firm.

Turns out there may be some merit in these informal discussions, as is evident here in Mahindra Electric’s example. According to its CEO Mahesh Babu, “The company is looking to double its sales of electric vehicles, including passenger cars. It is economically viable to sell EVs to fleet operators than individuals.”

SIAM’s Mathur concedes that subsidy is an important factor, but the most important factor, he says, is the setting up of the ecosystem. “If you cannot get large volumes, the component manufacturers will not find it commercially viable to localise the components for EVs,” he says.

In practice, however, there are only a few thousand electric four-wheelers and a couple of lakh of electric two- and three-wheelers plying on Indian roads today. And so far, there is no planned infrastructure support for promoting mass adoption of EVs. There are a number of reasons for that. One, none of the stakeholders seems to be on the same page when it comes to the fine print of what the policy framework should be on EVs. Whether it should be for a short term (up to three-years and then reviewed, re-calibrated as proposed by a section of automakers), or for the long term (next five years or more); then, who should get incentives and subsidy and by how much; whether conversion of public transportation and government vehicles should be undertaken first or simultaneously alongside private vehicles (two-, three- and four-wheelers); if private electric cars should get subsidy or not; who facilitates setting up of charging stations and whether these charging stations should be run with renewable energy (solar, wind etc.) or fossil fuel — these are among a host of issues with no definite answers.

But why do these questions still persist? It is partly because of the policy initiative called FAME, whose first phase was implemented in April 2015, originally for a period of two years, till 31 March 2017. FAME I provided subsidy on purchase on electric and hybrid vehicles (subsidy up to Rs 22,000 on two-wheelers, Rs 61,000 on three-wheelers and Rs 187,000 on four-wheelers). FAME-II was supposed to replace FAME I with a focus on public transportation amongst various others issues, but FAME-I got extension and the second phase of FAME is still under works.
Did FAME-I succeed or fail? “While the policy did succeed in pushing both end-users and manufacturers towards the e-mobility regime, one of the key misses was rollout of the policy ahead of the government addressing fundamental issues such as standardisation of protocol for charging infrastructure, or push towards regional transport utilities and shared mobility. To me, we can’t say it wasn’t a success, but maybe a more timely implementation of EOI (expression of interest) soliciting proposals for a million-plus cities for multi-modal public transport could have had far-reaching effects of the FAME-I policy,” says Saket Mehra, Partner, Grant Thornton India LLP.

Players speak
Commenting on FAME-II, Maruti Suzuki India Chairman R.C. Bhargava says: “We would like to adopt a wait-and-watch approach to FAME-II rather than speculating about it. At present, affordability and (lack of) charging infrastructure are the major issues crippling the growth of EVs in India.” Bhargava says he does not believe that financial concessions are a long-term solution for the success of the EV programme.

On its part, Hyundai India spokesperson says: “We request the continuation of subsidy on EVs to promote the demand for cleaner vehicles. Also, reduction in GST rates on EVs and import duties on critical components will provide a strong support in making EVs adaptable for customers.”

Bernhard Maier, Global CEO of Skoda Auto, who was in India recently, said that making the latest technology available to the consumer does not make sense if the market is not ready. “A customer expects that when he gets an electrified vehicle: does he have the ability to fill it up with energy? Also are the power stations ready for that amount of energy? So if a market plays its role, we will play a proper role.”

Status check
The central government’s electric mobility plans have seen delays and flip-flops in the past. As for FAME-II, it has been deferred till at least September. “The various ministries and departments involved need to be on the same page when it comes to FAME-II. Questions of subsidy amount, incentives on both supply and demand side need to be examined more closely. It takes time,” says a senior official in the know of the behind-the-scene work on FAME-II. Sources add that the very intent to make India an ‘all-EV market by 2030’ has been under examination. “There are many reasons for it getting delayed. We are working on FAME-II and on extending the current policy for some time to ensure continuity,” said an official from the Ministry of Heavy Industries and Public Enterprises.



The Society of Manufacturers of Electric Vehicles (SMEV) has already asked the Ministry of Heavy Industries to reconsider the proposed subsidy structure under FAME-II on a set of electric scooters that are costlier than petrol scooters. In May SMEV had raised concerns over the proposed cap on incentive of upto 20 per cent on the ex-factory price of EVs under FAME-II, saying it would adversely affect the incentive to affordable two-wheelers’ segment. Sohinder Gill, Director, SMEV said those models seem to be for rich customers. “Adding to it are the skyrocketing battery replacement costs compared to the ones which are affordable, consume much less electricity, have low running cost and low battery replacement cost,” Gill said in his letter to the Ministry of Heavy Industries in May. “And the government seems to be keen to give three-time subsidy to the rich boys’ toys,” he added.

There are some points of contention in the proposed FAME-II policy framework, government sources say. One, how will money be generated for the proposed subsidy? “Whether money for the scheme is to be pooled by heavy industry, finance, or the road transport ministry individually or collectively is an issue under discussion. Can that corpus be used to procure buses for public transportation or should it be doled out as subsidy for taxis is another point of discussion. Of course, the impact of these decisions on masses is central to all such discussions,” says an official in the know.

BW has also learnt that there are discussions on capping the rate of subsidy to the power generated by an EV. A figure of Rs 10,000/kilowatt is under active discussion. If accepted, an electric car with 30 KW power will get a subsidy of Rs 3 lakh and the on-road price could be as high as Rs 12 lakh. Therefore, such subsidy won’t work as an attractive proposition either for makers or buyers, say auto experts.

Seeing gaps and delays in the official pan-India policy framework on EVs, some state governments have taken a lead by announcing their state-specific EV policy. States such as Karnataka, Andhra Pradesh, Maharashtra and Telangana have announced their own EV policy. The first state to declare its own EV policy, Karnataka announced incentivisation of EV production and established a target of Rs 31,000 crore in investments. Andhra Pradesh was the second Indian state to announce the adoption of an EV policy.
 
EVs for government
State-run Energy Efficiency Services (EESL), responsible for procuring EVs for the government, has already tendered for 10,000 EVs from Tata Tigor and Mahindra e-Verito, to kickstart the replacement of the existing fleet of petrol and diesel vehicles used by the government departments. There are over 5 lakh such vehicles which EESL intends to replace over the next three to four years, which will lead to fuel savings of about 8,000 million litres and 10 million tons of carbon reduction.

“The first 10,000 EVs are fully allocated up to March 2019. Maharashtra has asked for 1,000 EVs and Gujarat for 2,000,” says Saurabh Kumar, Managing Director of EESL, which works under the power ministry. But why did EESL cancel the tender for another 10,000 EVs? Kumar explains: “The charging infrastructure is undergoing a change. Therefore, we thought it is best to wait for the final specifications to be notified by the government. Because they may be different from what they were earlier. Therefore, the technical specifications of the car that we will have will also change. It is better to wait for the final notification before we proceed to the next tender.”
 
Push for public transportation
Kumar of NITI Aayog is batting for electrification of public transport rather than private cars. He explains: “It is not just buses but three-wheelers and smaller vans. It also includes railways and waterways. What we are saying is that we have this great opportunity to try and move away from the US model of mobility, which is the personal transport model i.e., 786 cars per 1,000 families. While we are at 18 or 20 cars (per 1,000 families). We are not yet logged into the US path.” According to Kumar, 86 per cent of the vehicles on roads are non-cars. “Let us focus on the 86 per cent which are not cars (two-wheelers, three-wheelers and buses). Two-wheelers are a huge number, we should focus on that,” says Kumar.

There are some e-buses already plying across various states. Take, for example, the Goldstone-BYD electric bus. “I believe the fastest way to go electric in the country is (through) public transportation. The advantages with public transportation is you don’t need to struggle for developing infrastructure (charging stations). Because all the electric mobility in public transportation is based in bus depots only,” says Naga Satyam, Executive Director, Goldstone Infratech. So far, 31 e-buses by BYD Goldstone are already plying on roads but with more state governments showing interest, the company is anticipating a demand for around 290 such buses before 2018 end.

So what is the potential of e-buses as public transportation? According to Satyam, in the next five years, at least 3 lakh buses are going to be 15-plus years old. Electric buses will be the logical replacement. Even at a 50 per cent adoption rate, there will be a demand for 1.5 lakh electric buses.

Chetan Maini, Co-founder of Sun Mobility, is another supporter of electrification of public transportation. “India is a different case altogether. Forty five per cent of our people go to work using two-and three-wheelers. And 40-45 per cent of the people in large cities go in buses. So while the world is focusing on cars, India has to focus on a very strong public transportation, a strong shared mobility solution, and on solutions that are interoperable rather than one source of energy we use across multiple platforms,” he says.

Agrees Deepak Gupta, former secretary in the Ministry of New and Renewable Energy. He says the attempt to subsidise a few cars, whether personal or government, with inadequate charging infrastructure will lead to wasteful expenditure and not reduce oil consumption and emissions.  

(With inputs from Ashish Sinha)