- January 17, 2022
- Posted by: CFA Society India
Srividhya Venkatesan, CFA
India has emerged as an important automotive market over the last decade and climbed the ranks, to be amongst the leading automobile markets worldwide. A key market on both, the demand and supply side, India stands to gain from the growing transition towards electrification of vehicles. While it is still early days for this transition, the future of EV looks very bright and appealing. According to an independent study conducted by the CEEW Centre for Energy Finance (an initiative of the Council on Energy, Environment and Water (CEEW), one of Asia’s leading think tanks), Electric Vehicles could be a cumulative US$ 206 Billion Market Opportunity for India (FY21-30) (1).
The Indian Electric Vehicle market is currently at a nascent stage with only 1.3% (2) penetration (based on total vehicles sold in 20-21). However, the interest in the space is rapidly growing with major global and domestic brands announcing their EV development and production plans. So, what is propelling this legacy of carmakers who have been making ICE vehicles (Internal Combustion Engine Vehicles) for decades, to move to electric?
1. Reducing carbon footprint: Globally, the transport sector constitutes ~24% (3) of direct CO2 emissions from fuel combustion. A move towards EV adoption would mean a no fuel burn and hence no emission!
2. With a growing spike in global oil prices, crude oil import bill could impose a destabilizing impact on its finances: In India, ~85% of the domestic oil needs are imported, with the oil import bill standing at $62.7billion in FY21 (4) and this is expected to jump higher with a spike in the global oil prices. Switching to clean energy could help strengthen India’s energy security.
3. Falling costs making EVs more affordable: Technology advancement combined with the falling cost of lithium-ion batteries (which constitutes 35-50% of the EV Cost), is rapidly narrowing the price gap between EV and combustion engines making EV an affordable proposition.
4. Green Policies by Government to reduce up-front cost: Incentives in form of purchase incentive, interest subvention, road tax exemptions, etc. is making EV financially lucrative. Under the FAME India Scheme Phase-II, the Government of India has made a budgetary allocation of INR 10,000Cr till 2024 to give a boost to the development of Electric Vehicles with a key focus on increasing localization, expanding charging infrastructure, and mandated adoption targets for E2W (Electric 2-Wheeler).
5. Expected to reach better ownership economics:
- EV motors have fewer moving parts, no exhaust systems, fuel injectors, alternators, or starters.
This makes its assembly process much simpler, increasing its longevity, and potentially lowering its maintenance cost.
- EV vehicles are more powerful at lower speeds making them an ideal option for city traffic.
- Some studies indicate, that in terms of the Total Cost of Ownership (TCO – capital cost + operational cost + vehicle usage) E2W and E3Ware more economical than their ICE counterparts at a specified daily average usage (5).
EV disruption has created a big opportunity for small players and start-ups. While some legacy players initially followed a slow transition to e-mobility, it was the start-ups and small players who lead India’s electric mobility mantle, especially in the E2W segment.
Historically, startups have been at the forefront of technology adoption and bringing innovation in products and solutions, specifically on an unchartered path. EV space has been no different. In FY2021, only three of the top 10 electric two-wheelers sold, was from the established auto majors, rest was from new players (6).
Startups across the EV value chain – Ola Electric, Ather Energy, Euler Motors, Okinawa Autotech, Revolt, Tork Motors, BluSmart, Battery Smart to name a few are bringing in technological innovations and economies of scale to disrupt the market.
Catching the fancy of Private Equity (PE) and Venture Capital Funds (VC):
2021 was a game-changer year for the EV segment in terms of funds raised. EV has been catching the attention of the PE/VC space and how!
PE/VC funds are steadily investing in the space, which on one hand validates the EV narrative and on the other hands fuels their future growth.
With limited operational history and the high-risk aspect involved, the traditional sources of funding have shied away from the EV space. PE/VC has functioned as a catalyst for the EV start-up ecosystem. Investing at the prototype stage/ research and development/ marketing and team hiring/ ARAI Certifications, PE/VC has been funding the EV startups at diverse levels.
As per published data, during the period Jan-July 2021, over $86mn was raised across EV Space from PE and VC Funds (7). Post-July 2021, some large ticket investments were announced in the space including a $1billion investment from TPG in Tata Motor’s electric-vehicle business (8) and an over $200mn investment in Ola Electric (9).
The announced deals have been across the value chain – from battery packs to OEMs to EV Charging networks and platforms. The sector has managed to catch the interest of investors at different investment levels and from financial and strategic investors, alike.
How does India stand to benefit from the EV disruption?
The year 2021 was a landmark year, with an estimated 6.4 million vehicles – EVs and PHEVs (Plug-in Hybrid Electric Vehicle) combined – sold globally by the end of the year, registering a whopping 98% growth y-o-y (10).
- While China and Europe are leading the global electric-vehicle revolution, India is trying to maintain steady progress to meet its ambitious 2030 target of achieving 100% electrification of vehicles. During the period, April-Nov 2021 around 198,000 EV Sales were registered, which though a small fraction of the overall vehicle sales; notably, for the first time, EV registrations crossed the 40,000-mark in November 2021 with total monthly sales of 42,055 units (Source: JMK Monthly EV Update – November 2021).
- According to a report by IBEF, India was the fifth-largest auto market in 2020 globally, with about 3.5 million passenger and commercial vehicles sold. With the government prioritizing the shift to clean mobility, India could be in the top EV market globally over the next few years (11)
- India has also announced a Production Linked Incentive Scheme for ACC Battery Storage Manufacturing, this would localize production of batteries and reduce import dependence. With battery accounting for 35-50% of the total EV Cost – localization could help reduce the overall cost.
What Lies Ahead?
- E2W is the early adopter of EV in India. Affordable price point, lower TCO, easy home/workspace charging, and initiatives to use e-mobility for last-mile delivery are driving the uptake in this segment.
- EV technology evolution in India requires sizable investment for manufacturing and deployment. According to an independent study conducted by the CEEW Centre for Energy Finance (CEEW-CEF), this investment would be around US$177 billion towards manufacturing (total production cost for OEMs), and investment towards charging infrastructure deployment would be around US$ 2.9 billion until 2030 (1).
- Its early adoption would depend on the EV supply chain. The focus needs to be on localization.
- In this early stage of EV transition, there would be a few expected glitches like supply constraints, delivery delays, infrastructure challenges, range anxiety, lack of service options – the market needs to be patient for this segment to evolve and prosper.
- The high cost of commercial electricity and stability of the grid to support charging infrastructure also needs to be set in place for the segment to prosper.
Disclaimer: “Any views or opinions represented in this blog are personal and belong solely to the author and do not represent views of CFA Society India or those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated.”
About Susarla Srividhya Venkatesan, CFA
Srividhya is a Chartered Accountant and CFA Charterholder. She has 15 years of experience in Investment Banking. She has worked on several transactions including IPOs, QIPs and Private Equity Placement across sectors. She is the Co-Founder of Scube Financial Services LLP, a new age Investment Banking cum Financial Advisory Firm, based out of Mumbai