Indian Automotive Industry Is Fast Evolving To Electric

Electric vehicles today are head turners on the Indian roads. They are increasingly gaining the mind space of Indian consumers as EVs offer a practical solution to their concerns, such as rising fuel prices and worsening pollution. New EVs launched in the past few years are providing more choices to the buyers and increasing positive word-of-mouth from the early adopters are helping in busting myths and overcoming mental barriers that existed against their adoption. Moreover, the Government of India has also given a thrust on electrification to address the key issues of urban pollution, trade deficit, and energy security through various policy interventions. State Governments have also played their role through enabling policies complementing the efforts of the Central Government thus creating a favorable environment for both ecosystem players as well as buyers. Consequently, there is a steep rise in demand for electric vehicles in the last few years and there’s increasing confidence among the business community to now invest in the development of the EV ecosystem.

Progress so far

Government incentives have played a big role in creating an enabling environment for the adoption of EVs. The first phase of initiatives, such as NEMMP (National Electric Mobility Mission Plan) and FAME I (Faster Adoption and Manufacturing of Electric vehicles), from 2012 to 2016, had limited impact in overcoming the key barriers to electrification. However, the direction set by the Government and policies introduced post-2018 have brought greater focus and have comprehensively addressed the critical barriers to EV adoption. 

The Vision 2030 of the Government of India to achieve 30% EV penetration of new vehicle sales by the end of this decade has been backed by a series of fiscal and non-fiscal incentives. The second phase of the FAME program (FAME-II) announced in 2019, with INR 10,000 crores outlay, has been noteworthy. It focuses on driving localization, incentivizing buyers, and supporting the development of charging infrastructure, which are three key areas that need to be strengthened to drive the adoption of EVs in a sustainable manner. Moreover, waiver of road tax, registration, and reduction of GST to 5% has greatly helped in addressing the price barrier. Additional purchase incentives announced by a few State Governments have further boosted the adoption of EVs in those states. 

Aided by these incentives and increasing fuel prices, the Total Cost of Ownership (TCO) for fleet, running about 50,000 kms in a year, are now more favorable for EVs as against comparable diesel or CNG powered vehicles. Also, for private buyers with 10,000 kms annual running, it is expected to become TCO favorable within a year.

On the consumer side, the perception of EVs and consideration for purchase is changing fast. New launches in the past two years have particularly played a crucial role. These new EVs are more practical and are being perceived as a more aspirational product. For example, Tata Nexon EV, launched in Jan 2020, offered an aspirational EV while striking the right balance between price, range, and performance. Till its launch, EVs were selling at about twice the price of a comparable Internal Combustion Engine (ICE) vehicle. This was a major barrier to the adoption of EVs. Nexon EV addressed this by pricing it within 25% premium of a comparable compact SUV.  Also, with a certified range of more than 300 kms, it overcame the range anxiety for private buyers who generally drive ~40-50 kms in a day. A warranty tenure of 8 years, offered on battery and e-drivetrain, addressed the uncertainty in the minds of consumers, with regards to the issue of durability around new technology. Consequently, Nexon EV now generates more bookings than a Nexon diesel variant. This clearly signals that EVs are fast becoming a mainstream choice among car buyers.

Another major barrier to adoption among buyers was the worry around charging of EVs, given that there are limited charging stations available across the country. This was overcome by installing a home charging solution, free of cost, along with the car. Data analysis shows that today, 95% of more than 10,000 Nexon EV buyers are charging their cars using their home charging solution. This is being well complemented with a network of public charging stations, that are being installed in major cities and highways in the country led by Tata Power. The company has already installed more than 1000 public chargers.  

Early adopters of EVs are the main advocates for increasing consideration of EVs among car buyers. More than ten thousand current EV car buyers have been spreading positive word-of-mouth and sharing their experience with prospective buyers. This is propelling EV adoption further and shifting the consumer base from early adopters to the early majority. This is validated with an internal survey conducted by Tata Motors, which shows that customers using Nexon EV as their only car or using it for their primary use, has increased from about 30% to 60% of Nexon EV sales in the last six months. Booking penetration of Nexon EV has also been increasing and it currently stands at ~15%-20% of Nexon bookings. 

It is remarkable that within four years (FY17 to FY21), the passenger EV industry has witnessed a growth of seven times (7X). Tata Motors alone has sold 12000+ EVs till Nov’21 and monthly booking generation has started touching 3,500 for its two models- Nexon EV and Tigor EV. In FY22, the Indian Passenger Vehicles EV segment is expected to triple in sales, as compared to FY21.  While EV penetration today in the Indian PV industry is less than 1%, for Tata Motors, it has crossed 5% of overall sales, with its three products-Nexon EV, Tigor EV, and XPRES-T. It is also interesting to note that EV penetration in states such as Maharashtra and Gujarat, which have announced progressive EV policies with additional demand incentives, it has increased to ~25%. 

A positive outlook for an electric future 

Going forward, 16 State Governments are likely to announce progressive EV policies, out of which 5 states have draft EV policies ready to be released soon. While on one hand, the Government is incentivising EVs to drive adoption, on the other hand, it is tightening the emission roadmap for ICE-based vehicles (e.g. CAFÉ norms), thus persuading OEMs to include EVs in their portfolio. It is encouraging to see that various auto OEMs have announced plans to launch around 25+ high-range EVs in the Indian market by FY26. In addition, aggressive plans by various players, like Tata Power, in setting up public charging infrastructure will address the remaining barriers to the adoption of EVs. 

It is clear that with early adopters of EVs spreading positive word-of-mouth, more EV launches expected in the near future, continued policy thrust of government supporting EVs, and widespread availability of charging infrastructure expected in the coming years, the automotive industry will be fast evolving to electric.