A massive untapped electric vehicle market no one is talking about
An overview of the state of play in India by Pooja Vadhva. If you enjoy this newsletter, give us a share and subscribe!
Having recently visited India earlier this year, I noticed many vehicles on the road, encompassing 2-, 3- and 4-wheelers. To my surprise, I even spotted a few electric rickshaws zipping past. Upon returning to London, I wondered why there aren’t more people talking about the large automotive sector India possesses and the shift towards electrification. In other words, why are more people not talking about the world’s largest untapped market for electric vehicles (EVs)?
I am talking about a country not conventionally considered a major manufacturer or importer of EVs. But with EVs accounting for ~2 % of vehicle sales in 2022, which is expected to rise by ~40-45% by 2030, combined with a population size of >1 billion people, India poses a lucrative EV market. Though the country’s targets appear ambitious when considering the nascent stage of its EV sector, there has been a shift in federal policies, such as the Faster Adoption and Manufacturing of Hybrid and EVs (FAME) II, to prioritise making electric 2-wheelers more affordable by providing cost incentives and accelerating approval for electric buses and EV charging stations across 25 states.
Though India provides a largely untapped and profitable EV market for electric car manufacturers, ‘typical’ EVs and SUVs with a long range that has helped EV adoption in Western markets, will not work quite so well. Even Tesla’s cheaper models cost a hefty ~$40,000 and are out of budget for many Indian families that have a mean annual income of just ~$2,500. As a result, the landscape of EV adoption in India will look very different to that of western countries in that the majority of the EV uptake will be dominated by 2 and 3-wheeler sectors. By comparison, India’s 4-wheel sector stands at ~0.1% (2022) and is projected to grow to ~15-20% by 2030. The smaller 4-wheel EV segment is not only due to the higher price tag of electric cars. Even petrol 4-wheelers are less common in India and are usually owned by drivers or wealthier families for long journeys. Due to heavy road congestion, growing population, greater affordability, lack of infrastructure and poor road conditions particularly in rural areas, 2-wheelers are better suited for Indian population. 2 and 3-wheelers account for almost 80% of total vehicles sold annually. This explains the larger uptake in 2-wheel EVs, though there are still a lot of hurdles to be overcome, for example, India’s charging infrastructure that needs to be significantly expanded to help reduce “range anxiety.” Several companies have already started working on these challenges, the largest company being Tata Power India’s largest integrated power company which is prevalent in a wide range of aspects of the power sector, from fossil fuel and renewable energy to solar rooftop and EV charging stations.
The Indian electric vehicle landscape
Electric mopeds, scooters, and India’s famous 3-wheel rickshaw taxis can easily pass-through traffic whilst helping to reduce tailpipe emissions. Having visited India earlier this year, I discovered that the pollution and smog issues were increasingly apparent especially in large cities such as Mumbai and Delhi, with Delhi taking first place as the city with the world’s worst air. This helps to explain the increased drive behind India’s ambition to make New Delhi the “EV capital of the world” with policies mandating 25% of all new vehicles must be electric by 2024. Policies are inclusive of incentives for e-bikes and e-rickshaws with the government announcing low-cost charging for this smaller EV sector. There has been great progress since the policy was implemented 2 years ago (2020) as sales have increased by ~40%, accounting for more than 72,000 EVs. Of note is India’s large and highly profitable last-mile delivery space, expected to become a $6 billion market by 2024. The increased internet connectivity in lower-tier cities means that there is an increasing demand for e-commerce which extends beyond metropolitan cities. The impact of the 2019 pandemic caused a surge in online marketplaces resulting in wholly digital businesses which have been more resilient in the face of the crisis. It is predicted that this sector will contribute to 30% of overall EV sales compared to just 10% of internal combustion vehicles. The lower running and maintenance cost, governmental tax and financial incentives towards EVs have helped to spur the momentum in their favour. 2 and 3-wheel vehicle sectors will be the easiest to kickstart this electric wave, being more affordable, easier to cut through traffic in and generally better suited for the large last-mile delivery sectors in India. Electric 3-wheelers such as rickshaws have taken over large parts of India, and I noticed quite a few of them during my time in Jaipur. They are quiet, lighter, and cheaper to charge. It is also convenient for the drivers, one of whom told me they can be easily charged at a central hub provided by rickshaw companies.
Understanding the nuances in India’s automotive ecosystem and how the type of EV plays a major role is very important. An example of this has been seen recently (2019) when Tesla tried to enter the Indian EV market. The plan which has been on hold since then was to bring either fully assembled vehicles or reassemble Tesla EVs in India. The reason for the stagnation has been the high import duty that India has placed on EVs, 60% on EVs priced at $40,000 or lower and 100% priced on EVs greater than $40,000. The Indian government is actively trying to encourage the transition to EVs with many electric companies (including Hyundai, Ola electric and Global Motors) using schemes linked to the production of advanced chemistry cells that can be used in current EVs. It is speculated that India wanted Tesla to participate in this scheme which would help to increase battery manufacturing capability in India. Tesla, on the other hand, would need to obtain an adequate number of orders from the Indian market to justify building a plant. The already expensive Tesla EV, in combination with the high import tax, makes it very difficult for Tesla to sell a large volume of EVs in India.
A few solutions to India’s electric vehicle problem
The government wants to draw foreign investment in the production of lithium-ion batteries and EV components. The hope is that this will boost the local production of EVs and know-how in the field of batteries and electric drivetrain components. However, the approach to disincentivise imports means that foreign OEMs must overcome high import duties placed by the government which could result in pull-back of deals (e.g., Tesla stagnation). The balancing of imports and local production of EVs is another interesting aspect of India’s EV sector. A temporary reduction in import duties might be prudent to allow OEMs such as Tesla to sell EVs in India and help them justify building a manufacturing plant locally. Charging infrastructure is lacking and is another major bottleneck when boosting EV sales. Schemes such as FAME are expected to increase charging stations with central and state governments starting to plan public charging installation and tax reliefs for private companies and housing developers. A unique solution to the lack of charging stations has been to deploy swappable battery packs which can work well for the 2 and 3-wheeler sectors (small battery packs can be fit under the driver’s seat for example and are easily removed). For the next few years, it seems the electric 4-wheelers will remain a niche market although, in the large vehicle segment, the electric bus fleets are thought to expand, largely supported by local private companies and government incentives. Considering 40% of India’s fuel demand is diesel and is used mostly by trucks, electrifying these vehicles will help to reduce pollution and meet climate change targets. India’s smaller trucks, school buses and 3-wheelers will likely be early adopters in the electric transition, especially for last-mile delivery sectors where the lower cost of charging will provide a huge cost advantage for e-commerce and delivery sectors. For these private companies, the higher initial CAPEX of an EV compared to a petrol or diesel equivalent will not be such an issue. Other innovative solutions include individuals leasing EVs from private companies that buy the EV upfront whilst other cities are concentrated on e-taxis which works well in a country where ride-sharing is common. An alternate solution proposed by the government allows EVs to be registered in India without batteries – which are a large part of the cost. This means that different battery suppliers and technologies can be chosen which encourages innovation and competition between battery companies and could help to lower costs for the consumer.
Overview of the Indian EV market
The Indian EV market is interesting and has a lot of growth potential. The government is focussing on policies to encourage EV adoption but also on local production, supply chains and even the recycling of lithium-ion batteries used in EVs. Local private companies are heavily investing in the light EV sector, with some foreign OEMs finding market penetration a little more difficult due to the high import tariffs. It remains to be seen what the next steps will be, perhaps a temporary reduction in these tariffs by the government? The rapidly growing start-up space of light EVs is an exciting prospect for India and the young entrepreneurs that are innovatively funding solutions to problems such as lack of charging infrastructure, high cost of EVs and “range anxiety”. Though the EV landscape is different to countries in the West, the problems of EV cost, charging and range are still prevalent and perhaps some of the learnings, business models and technical solutions in India will carry over. The promising Indian EV space is certainly very exciting and has just begun!
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Most of the world does not use cars. It uses scooters. Cars are for Europe and the Anglosphere. Scaling EV scooters is the major activity required everywhere else. And developing countries' ability to generate and transmit electricity is even more limited than in the west.
Unfortunately, the major vehicle makers have no interest in the scooter market. Imagine Tesla announcing the M1 (M0?), which has two wheels and is affordable across the world, due to Tesla's incredible engineering/manufacturing capabilities. That would be a game changer.
The recent discovery of lithium reserves in India is worth mentioning in this article. Although the Indian market might look opaque, the EV sector should learn from the multinational FMCG companies. Each market is unique and has its own way of working. From the Indian perspective, the current policy might benefit knowledge building and promote local entrepreneurship in the long run. It must be admitted that the road is rather long and daunting, but volume is the key.