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ELECTRIC VEHICLES EVs without pre-fitted batteries: Understanding the impact & missing elements of the policy

Sep 28, 2020

India has been a rather sluggish adopter of EV. The government of India has been offering incentives and bringing in policies to bring a change to this mindset. In a similar endeavour, the Centre on August 12, 2020 announced permittance to the sales & registration of EVs without pre-fitted batteries. The Viewpoint, with opinion from industry stalwarts from Honda Cars India, Okinawa Scooters and Frost & Sullivan, analyses the impact of this policy on 2W/3W and 4W manufacturers, the shortfalls of the policy and the measures that can be otherwise implemented to boost EV sales in India.

India has been a slow adopter of Electric Vehicles (EVs) compared to the world and is still warming up to it. According to a report by International Energy Agency (IEA), when it comes to e-cars, as of the end of 2019, the world sales was close to 7.2 million cars, which was a 40% jump over 2018, while India sold only 5000 EVs i.e. only 0.07%. And while 14.4 million two-wheelers were sold between 2018-2019, only 0.9% of it was EV 2W, according to the Economic Survey.

Challenges to go electric

While the government is still working on offering an incentive-based policy, the lack of an adequate and affordable infrastructure poses as the main hindrance in the adoption of EVs. India has an ambitious target of setting up charging stations every three kilometres in the city and every 25 kilometres on both sides of highways; but as of 2019, there were only 150 charging stations throughout the country. This naturally affects the sales as there is looming range anxiety in the minds of Indian buyers. Now, even though EESL plans on installing 2000 charging stations throughout the country by 2020-2021 and the state governments are taking initiatives to set-up charging stations in their states, too, it might ease out the range anxiety, but the high price of the EV still poses as a problem. In India, electric cars are sold at around ₹13 lakhs, which is much higher than an average fuel-based car that is sold at starting ₹5 lakhs. Same goes for two-wheelers; an average two-wheeler is sold for ₹30K–₹40K but an e-scooter/motorcycle falls between the range of ₹70K–₹1.25 lakhs. Besides, the policies and incentives by the government framing EVs have been tumultuous for both the buyers and the industry.

Going without pre-fitted batteries

Undoubtedly, the government is working constantly towards bringing out policies and incentives to boost the sales of EVs in India to ensure manufacturing them is profitable and buying them is not financially draining. In a continued endeavour, the Ministry of Road and Transport, on August 12, 2020, made a landmark decision to bring in a change in the buying structure of EVs. It has now allowed the sales & registration of EVs without pre-fitted batteries, which means the overall cost of an EV reduces by 30-40%. The ineffectiveness to bring down the cost despite measures, like GST reduction on EVs from 12% to 5%, faster adoption and manufacturing of hybrid and Electric Vehicles-II (FAME-II) incentives, as well as the income tax deduction announced by the government, is what led to bringing about this first-of-its-kind policy.

Owing to the complexity involved in manufacturing electric 2/3W and 4W, this policy has brought in different opinions & responses towards its acceptance in the industry. While prominent two-wheeler manufacturing OEM, Okinawa Scooters’ Managing Director, Jeetender Sharma, believes that financially, the cost of EVs will reduce and make it easy for customers to own an EV, he also mentioned, “As batteries are responsible for synchronising the powertrain of an EV, which battery is a good for which manufacturer remains to be seen. This move may lead to many discrepancies between vehicle manufacturers, battery manufacturers and dealerships.” Companies involved in the making of 4W EVs, like Mahindra Electric (ME), believes this policy could jeopardise the safety of the vehicle. MD & CEO of ME, Mahesh Babu, in a press statement cited, “No country in the world allows registration of EVs without battery. We will explain to the government that this notification has created confusion. Up to the sale of the vehicle, the OEM is responsible for the safety of the vehicle. A vehicle is tested, manufactured and sold as an integrated vehicle and the OEM is responsible for the warranty. Either charging or swapping is post-sale charge replenishing methods. Both can exist in the current framework. This move has not been thought through and the industry has not been consulted.” Another EV 4W maker, Honda Cars India’s Manufacturing Operations Head, Navid Talib, opined, “In its current form and quantum, this measure was not adequate to alter the car buyer’s choices of vehicle ownership. Therefore, I consider this new policy as a welcome step towards the reduction of upfront buying cost at least for the 2W and 3W buyers, but is of no relevance for 4W buyers, given the complexity and safety requirements.”

Incompetent leasing business models affecting feasibility

The battery of an EV is not just a mere accessory, but the heart of the vehicle. Sales without pre-fitted batteries open avenues where EV owners don’t buy but rent charged batteries for a certain cost, akin to the refuelling of conventional vehicles. The lowering cost due to pre-fitted batteries can be a carrot to attract customers, but the lack of battery swapping, leasing and rental infrastructure could bring in hesitation. Seshasayee Tatineni, Senior Research Analyst, Mobility Practice, Frost & Sullivan, asserted, “Buying the battery separately from EV makers or battery manufacturers is not going to reduce the upfront cost of the vehicle. With the policy in place, EV makers, battery manufacturers and aggregators should expand their swapping/leasing services across the country to boost EV sales. This policy may be well received by electric 2W and 3W manufacturers and customers, however, this is highly unlikely to work for passenger cars in India.” According to the NITI Ayog report on ‘Zero-Emission Vehicles (ZEVs): Towards a policy framework’, the Government of India would consider providing long-term and short-term tax-incentives and faster depreciation as incentives to Energy Operators (EOs) for deploying slow/fast chargers and carrying out battery swapping. GST for all these chargers and swappers ought to be the same as that for the vehicles. Swappable vehicle batteries and vehicles without batteries (which receive swappable batteries) should also be treated the same under GST.

Installation of chargers should be allowed (and over time, mandated) for on street parking, parking lots and any public charging space. Commenting on building a strong infrastructure, Talib opined, “Similar infrastructure-related apprehensions were there back in 1993 when CNG was being introduced in India. But over the period, the service network has expanded, and today, we have nearly four million users and 2,208 filling stations. We need to learn from this experience and quickly remove the bottlenecks that exist & establish the leasing/rental model involving all stakeholders.”

Making the policy implementable

The persistent lack of clarity in the technical guidelines mentioning the liability, which is crucial considering the number of stakeholders involved, needs to be cleared out with a dialogue between EV makers and the government to ensure the policy can make its way out onto the road. Sharma suggested, “Guidelines with proper technical specifications should be made available to both manufacturers and customers.” Tatineni thinks this would be needed to encourage the vehicle manufacturers to consider this policy.

Despite the government directives, guidelines and deadlines, setting up sufficient EV charging/battery swapping facilities across India is a time-intensive exercise. Talib recommended, “The government should take on the first-mover role for deployment and management of pilot units across India and then, after streamlining the modus operandi, go in for PPP business model along with EV makers. The Indian EV ecosystem is in the nascent stage, ancillary component makers, who are in the process of learning, are vital players of the ecosystem and require all the possible governmental support.” India being more of a cost & brand conscious market, Tatineni implied, “More than incentives or lack of charging infrastructure, it is the lack of affordable yet reliable EVs in the Indian market that is affecting the sale of EVs in the country. Therefore, the government should focus more on motivating traditional vehicle manufacturers to launch electric products by incentivising and supporting them in component localisation and not just providing incentives to the customer.”

Making EVs lucrative & economically viable

Though the agenda behind this policy is making EVs an attractive and feasible buying option for the Indian audience, more well-calibrated incentives would be needed to ensure consumers start preferring it over traditional vehicles. The limiting factor of batteries on driving range may be addressed by developing an ecosystem of fast-charging or swapping of batteries. This can be achieved by creating requisite infrastructure, possibly in every kilometre, in dense areas. Reducing the number of batteries that an EV needs and making batteries cheaper on a per-kilowatt-hour basis could make it a conducive choice. Tatineni advised, “The government and vehicle manufacturers need to explore multiple charging options, such as conventional charging stations having both slow & fast chargers, home charging points and battery swapping stations. Home charging points will continue to dominate in the electric 2W and 3W segments, however, charging stations with fast chargers would be required to drive the adoption of passenger cars in India.” He also ascertained, “Similar to developed countries, the Indian government should continue to provide incentives and subsidies to charging infrastructure providers until the critical mass is attained.”

To make EVs further bankable, Talib alluded, “The government should mandate public sector banks to give priority sector lending to electric vehicles. There is also an immediate need to revise the current FAME-II demand incentive clauses to make EV buying affordable, as was the case in FAME-I.” He went on to add, “For an initial period of one to two years, where the battery cells and IPU in some cases are being imported, revise the current demand incentive of ₹10,000/kWh of battery capacity to 1.5 to two times, similar to the incentive offered to buses. Simultaneously, build a consortium of EV makers to enable joint research, development and manufacturing of battery cells in India.” While Sharma believes the government is doing the best they can, he suggested, “The government should start an awareness programme so that the consumer gets educated about EVs, and EV makers, in turn, should provide a good performance product so that EVs becomes lucrative to the customer.”

Aiming at sustainable mobility

Though first in the world, Indian EV makers can certainly benefit from this latest policy if implemented with open communication between the government and manufacturers. Looking at the nuances of the policy, it can bring in a great positive impact for 2W & 3W manufacturers only. More customised and well-thought policies will need to be put in place for 4W manufacturers, with an emphasis on robust charging infrastructure throughout the country. In the long run, converting to EV from ICE would bring a considerable reduction in the oil import bills and would be a major contributor to improving the air quality. With strong innovations, a policy regime that encourages access to latest technologies and a concerted effort by the Indian industry to achieve global competition through acquiring the necessary scale and using cutting edge technology, India could create a conducive environment for sustainable mobility.

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  • The government should start an awareness programme so that the consumer gets educated about EVs, and EV makers, in turn, should provide a good performance product so that EVs becomes lucrative to the customer. - Jeetender Sharma, Managing Director, Okinawa Scooters

  • The government should take on the first-mover role for deployment and management of pilot units across India and then, after streamlining the modus operandi, go in for PPP business model along with EV makers - Navid Talib, Manufacturing Operations Head, Honda Cars India

  • With the policy in place, EV makers, battery manufacturers and aggregators should expand their swapping/leasing services across the country to boost the sale of EVs. This policy may be well received by electric 2W and 3W manufacturers and customers; however, this is highly unlikely to work for passenger cars in India. - Seshasayee Tatineni, Senior Research Analyst, Mobility Practice, Frost & Sullivan

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