India's automotive market poised for electric vehicle boom

19 August 2020 Consultancy.in

A number of factors are combining to make India’s electric vehicle (EV) market ripe for growth in the near future, according to new sector-wide analysis from Kearney.

The report shows how consumer and producer attitudes, as well as the underlying physical and regulatory infrastructure are all conducive to rapid electrification. India is urbanising at a quick pace, leading to the emergence of an expanding middle class in search of suitable mobility options.

Despite growing disposable income reserves, the cost of mobility remains a key consideration for middle class consumers, while coverage, energy-efficiency and comfort are also top of mind. According to Kearney, these priorities fit nicely within the electrification agenda.

“Urban consumers are expected to drive penetration in the early phase of adoption. Electric cars geared toward young, environmentally conscious buyers will accelerate adoption,” wrote co-author of the report and partner at Kearney Manish Mathur. Obvious environmental benefits aside, these consumers are likely to be lured in by the falling costs of EVs.

TCO for EVs is lower than petrol vehicles

In fact, Kearney’s report shows that the total cost of ownership (TCO) of an EV is far lower than a petrol or diesel vehicle, owing to high fuel prices. This is a relatively new phenomenon, and given that the initial cost of acquiring an EV is among the biggest barriers to adoption, this scenario is likely to push EV adoption over the hurdle.

So the demand is in place, but supply has been slow to come by. High costs of equipment and an overall lack of infrastructure has so far discouraged manufacturers from giving EVs centre stage in production. Personal EVs are set to be drivers of adoption, but there are significant challenges to adoption beyond just the cost burden.

”Although the market for personal vehicles is large and has significant potential, wider adoption faces several challenges, such as lack of comparable product options, range anxiety, and lack of experience with EVs. Home charging will continue to dominate, but this could be challenging since many Indian households do not have garages. Even in high-rise apartments, setting up infrastructure can be a difficult task. There is also a lack of highway charging infrastructure, restricting use to intracity travel,” explained co-author and principal at Kearney Rahul Mishra.

India will have adequate power supply to meet future EV demandThese barriers have weighed on EV progress in India, to the extent that the government has fallen behind on its electrification targets by some distance. While the aim was to replace all internal combustion engines (ICEs) with EVs by 2030, a McKinsey & Company report from 2017 indicated that 40% electrification was a more realistic picture of mobility in 2030.

That being said, the government has been actively involved in developing the infrastructure and the regulatory framework required to get as close to electrification targets as possible. An Arthur D. Little report from 2018 positioned 2020 as the tipping point that would lead to a boom in electrification. 

Here in 2020, Kearney points to the fact that the ecosystem is very much in favour of such a boom. One concern previously was around the power supply capacity in India, and whether it could meet the demand created by electrification. The authors report that India has “bridged the demand-supply gap in the past two to three years,” and will install another 300 gigawatts of capacity by 2030.

Ten states in india have policies on EVs

From a regulatory perspective, programmes such as the National Electric Mobility Mission Plan launched this year have paved the way for incentives and subsidies that will push manufacturers towards EVs. Several of India’s largest states have also implemented schemes at the local level to drive production.

What remains is the pressing issue of charging infrastructure, which requires large amounts of capital investment and is slow to produce returns. According to Kearney, members of the EV ecosystem are exploring various business models – state run, public private partnerships, aggregators and others – to help tackle this issue head on.

“The next wave of EV penetration will depend on identifying the right segments and applications, designing the right product, and shaping the appropriate business model and value proposition,” concluded the report authors.


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