EV production rises as India's mobility landscape evolves

09 September 2019 Consultancy.in 4 min. read
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Growth in India’s automotive sector is accompanied by the gradual but promising trend of gravitation towards electric vehicle (EV). A new study finds that sales of electrical vehicles in India is set to reach nearly 1 million over the 2019 financial year, driven by targeted government initiatives.

The rapid rate of economic growth across India has given rise to two scenarios. On the one hand, prosperity levels amongst an increasingly urbanised population have increased, fuelling growth in the consumer market. The automotive sector, which in India still is regarded as a luxury consumer industry, has benefited directly from this scenario.

A joint PwC and ASSOCHAM study reports that India’s automotive sector has been growing at a compound annual growth rate of 8.6% over the last four years. Alongside increasing prosperity and urbanisation, PwC also attributes this growth to facts such as a substantial millennial population, and grater investment in roads, highways and other transport infrastructure.

OEM - Domestic sales and exports

While this growth has brought India among the largest automotive markets in the world, it has simultaneously placed new burdens on the country, which represents the second scenario. India is now burdened with ensuring that its substantial body of vehicles causes minimal environmental damage.

The country’s large population already paves the way for an expansive automotive market, further compounded by a vibrant commercial vehicle economy. The authors highlight that nearly 4 million taxis have been added to India’s light commercial vehicle (LCV) fleet since 2002, taking LCVs to 4% of all vehicles on Indian roads.

Growth in the private and commercial vehicle space is likely to increase the environmental strain in India. As a result, the government of India has embarked on a mission similar to that being carried out in a number of other major economies – a comprehensive transition to EVs.

New registrations of taxis

Part of these efforts has been the ‘Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME)’ scheme, which was launched in 2015. This segment has contributed to significant increases in the sale and production of EVs.

The government’s working objective has been to achieve 100% electrification – at least on the production side – by as early as 2030, although the practical manifestation of this mission might vary considerably. India has achieved a rapid rate of electrification, and consumers are growing increasingly receptive to switching to the eco friendly and fuel efficient option.

However, the current rate of electrification will take India to between 30% and 40% by 2030. To accelerate this process, a number of stakeholders will have to contribute to generating greater momentum in the market. PwC and ASSOCHAM have detailed some of the various factors that could contribute to electrification in the near future, which are clubbed into five categories.

Impact of FAME I

The first category, ‘environmental concerns’, includes factors such as the change in price of crude oil, depletion of fossil fuels, increasing pollution, reduction in solar tariffs and increasingly regulatory burdens to minimise fuel consumption, all of which might accelerate the electrification process.

The second category is ‘government support’ which includes the “creation of EV demand, promotion of indigenous manufacturing and increasing EV customer awareness,” among others. The status of charging infrastructure in India is the third set of factors, which involves public and private investment, regulatory frameworks and the integration of the grid with charging stations.

The fourth set of factors – labeled ‘supply chain & distribution’ – includes the availability of the material required to make EVs and their components, and the establishment of incentives to push car dealers into selling EVs. ‘Customer acceptance’ is the fifth set of factors, which includes awareness of the economic rationale behind purchasing electrical vehicles.