6 minute read 12 Aug 2022
Future of electric mobility in India

Electrifying Indian mobility: Accelerating the pace of electric mobility

By EY India

Multidisciplinary professional services organization

6 minute read 12 Aug 2022

Global EV market trends continue to influence Indian consumers.

In brief

  • Having attracted investments to the tune of US$6 billion in 2021, the EV industry aims to reach US$20 billion by 2030.
  • The lack of EV charging stations in India is currently one of the biggest roadblocks.
  • Formalizing the legal framework, increasing public awareness, and addressing logistical issues can help advance electric mobility in India.

The ecosystem of electric mobility is now expanding in India. In 2021, electric vehicle (EV) registrations recorded a massive jump of 168% over 2020. While the Government of India (GoI) is taking various steps to reduce the country's reliance on fossil fuels and place EVs as the primary alternative to internal combustion engine (ICE) vehicles, a lot needs to be done for the mass adoption of e-mobility in India.

Formalization of the legal framework, public awareness initiatives, and redressal of logistical issues in the EV market can help secure the future of electric mobility in India, suggests EY's latest report, Electrifying Indian Mobility, jointly authored with the Indian Venture and Alternate Capital Association (IVCA) and INDUSLAW.

EV registrations 2021

As of CY21, EVs account for 1% of total vehicle sales in India. This number is expected to skyrocket to 39% by CY27, driven primarily by the travel segment, especially electric 2-wheelers (E2Ws) and electric 3-wheelers (E3Ws). Though e-buses have a lower adoption rate (0.5% of total vehicle registrations), they will probably gain traction with state governments inviting tenders to procure e-buses. Interestingly, the large-scale adoption of electric 4-wheelers (E4Ws) is expected to take longer due to range anxiety, varying duty cycles, and sparse charging network issues.

EV total vehicles sale
E: Estimated

Investment momentum expected to continue

The overall EV sales are picking up, and so are the investments. 

The industry attracted massive investments (~US$6 billion) in 2021 and is projected to attract US$20 billion by 2030. PE/VC investors poured in around US$1.7 billion in 2021; this number has already crossed US$666 million in 2022.

Investment in EV vehicles

The investment momentum is also expected to continue with climate-specific funds and environment, social and governance (ESG) funds growing in number and size. As the EV ecosystem expands, many new investors are joining the bandwagon.

The question now is: what is driving these investments?

One of the driving factors is the push by the central and several state governments, acting as a booster for EV startups. Companies are also raising funds to ramp up R&D, technology integration, testing and expansion. There are other factors as well propelling investments: the possibility of 100% ownership via FDI, growing awareness about sustainable mobility, and the larger goal of sustainability and reducing emissions.

A supportive policy environment is helping attract more investments and aiding the EV market growth. The second phase of the Faster Adoption and Manufacturing of Hybrid and EV (FAME II) scheme in India has led to a significant boost in investments in the EV space. Apart from other EVs, the scheme aims to support 5,00,000 E3Ws, 55,000 electric passenger cars and 1 million E2Ws.The recent announcements regarding the localization of EV components and the allocation of INR57,000 crore through Production-linked incentive (PLI) schemes and INR18,100 crore for advanced battery cells (ACCs) are expected to bolster e-mobility in India.

Barriers to EV adoption

While the benefits of EVs over traditional ICEs cannot be denied, several challenges need to be addressed to secure the future of EVs in India.

Increase in the number of charging stations.
E:Estimated

Charging infrastructure: With only 1,742 charging stations in the country, the lack of charging infrastructure is currently one of the biggest challenges for the EV sector in India. High operating costs, uncertainty in utilization rates of charging stations, and additional load on electricity discoms are some of the other factors creating a hostile environment for operators, resulting in an insufficient number of charging stations.

However, policymakers are taking steps to address this issue and provide regulatory support for setting up charging infrastructure for EVs. The number of charging stations is likely to increase to 100,000 by 2027 to accommodate the ~1.4 million EVs expected on the roads.

Batteries used in EVs: Most EVs use lithium-ion batteries that require metals like lithium, magnesium, cobalt, and nickel. Countries deficient in these resources depend on imports to realize their EV manufacturing dreams. However, imports increase the procurement costs, thus making EVs expensive. In FY20, India spent nearly US$865 million to import ~450 million units of lithium-ion batteries. These batteries also have a substantial environmental impact as extraction requires large quantities of water, is harmful to the soil, and causes air contamination. In addition, the current recycling procedures for lithium-ion batteries are inefficient; the components degrade over time and cannot be used in new batteries. Some manufacturers are developing alternatives to lithium-ion batteries used in the automobile industry, but their use is limited at present.

Research and development: India lags in R&D capability and manufacturers mostly rely on their foreign counterparts’ technological know-how in EV components, especially in battery technology. However, the scenario is fast changing. The Automotive Research Association of India, for example, is among those conducting research on electric vehicle trends in India and fast-charging technologies as per the needs of the Indian market.

Pollution: Compared to traditional ICE vehicles, EVs are a cleaner and greener alternative and, therefore an important part of the plan to reduce greenhouse gas emissions. However, the manufacture and use of EVs contribute to environmental degradation. For instance, operating the charging stations means depending primarily on polluting thermal power plants. Therefore, it is vital to ensure that the power source is clean energy, such as solar, wind, or hybrid power plants. Similarly, alternate methods are needed to reduce the environmental impact on soil, air, and water caused by the extraction of metals used in lithium-ion batteries.

Looking ahead

Government intervention at various levels, ownership of EV infrastructure, fast decision-making, collaboration and coordination with stakeholders, and commitment to short and long-term goals are required to ensure rapid adoption of EVs in India, suggests the report.

The EY report also suggests action points for battery manufacturers, policymakers, and auto companies to facilitate wider acceptance and infiltration of EVs in India.

Despite the challenges, global EV market trends continue to influence Indian consumers, resulting in an upward shift in the preference for EVs. There is increased familiarity with EVs thanks to the introduction of e-rickshaws, which have replaced traditional rickshaws in the public transportation sector due to their low cost, energy efficiency and cheaper maintenance. Besides the increased willingness of Indian consumers to use EVs, government incentives and subsidies will sweeten the deal and boost EV market growth in India.

Summary

While the Government of India is taking steps to place EVs as the primary alternative to ICE vehicles, steps like formalization of the legal framework, public awareness campaigns, and redressal of logistical issues will secure the future of electric mobility in India.

About this article

By EY India

Multidisciplinary professional services organization