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Electric Vehicles in India: Challenges & Opportunities


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Electric vehicles (EVs) are no longer science fiction. Scientific achievements in this space have led to the mainstreaming of EVs in the United States, Israel and some European countries. India isn’t far behind either with Mahindra-Reva, Hero Electric and other domestic OEMs leading the front. Durable lithium ion batteries, fast charging networks, efficient chassis design and electric drive trains are key links in the EV value chain and extensive technological progress has been made in all these areas. However, for EVs to truly lead GhG reduction in Indian Industry and have a positive impact on the country’s energy security, the integration of smart grids and renewable energy feeds into these grids are a must. In fact, without these two critical components, the introduction of EVs into the current ecosystem would be an ecological burden and lead to greater GhG emissions since energy will be derived from a predominantly coal powered and inefficient energy grid.

Therefore, this study undertaken by YES BANK and TERI-BCSD critically analyses the EV value chain, identifying hidden triple bottom line risks and highlighting innovative clean technologies and business models that mitigate those risks, thereby making the value chain more attractive from lending and investment perspectives. The paper also concludes with a sobering and pragmatic analysis of the current and projected EV scenario in India versus the internal combustion engine.

Published in: Automotive

Electric Vehicles in India: Challenges & Opportunities

  1. 1. TITLE Electric Vehicles: Challenges & Opportunities in IndiaYEAR January 2013 Lead authors : Samir Karnik, Nitin Sukh (Responsible Banking Team, YES BANK) Contributors : Agneev Mukherjee, Sarobjit Pal, Akshima Tejas Ghate,AUTHORS Sangeetha Ann Wilson (TERI BCSD) No part of this publication may be reproduced in any form by photo, photoprint,COPYRIGHT microfilm or any other means without the written permission of YES BANK Ltd. and TERI BCSD. This report is the publication of YES BANK Limited (“YES BANK”) & TERI BCSD and so YES BANK & TERI BCSD have editorial control over the content, including opinions, advice, statements, services, offers etc. that is represented in this report. However, YES BANK & TERI BCSD will not be liable for any loss or damage caused by the readers reliance on information obtained through this report. This report may contain third party contents and third-party resources. YES BANK & TERI BCSD takes no responsibility for third party content, advertisements or third party applications that are printed on or through this report, nor does it take any responsibility for the goods or services provided by its advertisers or for any error, omission, deletion, defect, theft or destruction or unauthorized access to, or alteration of, any user communication. Further, YES BANK & TERI BCSD does not assume any responsibility or liability for any loss or damage, including personal injury or death, resulting from use of this report or from any content for communications or materials available on this report. The contents are provided for your reference only. The reader/ buyer understands that except for the information, products and services clearly identified as being supplied by YES BANK & TERI BCSD, it does not operate, control or endorse any information, products, or services appearing in the report in any way. All other information, products and services offered through the report are offered by third parties,DISCLAIMER which are not affiliated in any manner to YES BANK & TERI BCSD. The reader/ buyer hereby disclaims and waives any right and/ or claim, they may have against YES BANK & TERI BCSD with respect to third party products and services. All materials provided in the report is provided on “As is” basis and YES BANK & TERI BCSD makes no representation or warranty, express or implied, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title or non – infringement. As to documents, content, graphics published in the report, YES BANK & TERI BCSD makes no representation or warranty that the contents of such documents, articles are free from error or suitable for any purpose; nor that the implementation of such contents will not infringe any third party patents, copyrights, trademarks or other rights. In no event shall YES BANK & TERI BCSD or its content providers be liable for any damages whatsoever, whether direct, indirect, special, consequential and/or incidental, including without limitation, damages arising from loss of data or information, loss of profits, business interruption, or arising from the access and/or use or inability to access and/or use content and/or any service available in this report, even if YES BANK & TERI BCSD is advised of the possibility of such loss. YES BANK Ltd. TERI-Business Council for Sustainable Development (BCSD) Registered and Head Office The Energy and Resources Institute (TERI) 9th Floor, Nehru Centre, Core 6C, Darbari Seth Block, Habitat Place Dr. Annie Besant Road, India Habitat Center, Lodhi Road Worli, Mumbai - 400 018 New Delhi - 110 003 Tel : +91 22 6669 9000 Tel : (+91 11) 2468 2100, 41504900 Fax : +91 22 2497 4088 Fax : (+91 11) 2468 2144, 2468 2145CONTACTS Email : Northern Regional Office Website : 48, Nyaya Marg, Chanakyapuri New Delhi – 110 021 Tel : +91 11 6656 9000 Email : Website :
  2. 2. MESSAGEThe traditional approach of the banking sector to sustainability is often regarded as lacking in proactiveinitiatives. However, several banks have recently adopted innovative and forward looking strategies to dealwith opportunities associated with sustainability. They have developed new products such as ethical fundsor loans specifically designed for environmental businesses to capture new market opportunities associatedwith sustainability. This very joint endeavor between TERI BCSD and YES BANK to explore Electric Vehiclesas an option of sustainable mobility that has the capability to significantly lower emission levels includingcarbon dioxide emissions which is an encouraging beginning.Rapid urbanization, rising per capita incomes, growing aspirations of an expanding population and sprawlingcities have resulted in transport demand increasing at a rate much faster than the rate of growth of transportinfrastructure. Indian cities are witnessing an exponential increase in the use of personal transport and asteady decline in the modal share of both public transport and non-motorized transport. There is a growingrealization, both internationally and nationally, that the current trends in urban transport are unsustainableand should be arrested. Urban transport should move along a low carbon and sustainable pathway. Severalinternational initiatives like the SLOCAT (The Partnership on Sustainable, Low Carbon Transport), and majorevents like the United Nations Conference on Sustainable Development, 2012 (Rio+20), etc. havehighlighted the challenges associated with meeting urban mobility demand in a sustainable manner. In India,the National Urban Transport Policy, 2006 aims to move future transport development in Indian citiestowards a sustainable and low carbon trajectory. Current policy promotes investments in public transportand non-motorized transport infrastructure so as to advance the agenda of sustainable mobility. While itbecomes important to plan for systems of public transport, and non-motorized transport for promotingsustainable mobility, it is also critical to ensure that personal modes of transport i.e. cars and two wheelersembody energy efficiency and low-carbon intensity. This is important because we are going to witness anexplosive increase in the number of personal vehicles in our country. It is therefore crucial that the newvehicular fleet in the country produces low environmental impacts.Electric vehicles, though not yet popular in India, are an important solution to addressing the issue ofvehicular pollution. The country has recently witnessed the unveiling of the National Electric MobilityMission Plan 2020 by the Honble Prime Minister, Dr Manmohan Singh. This move is significant at thisjuncture considering the country cannot continue its heavy dependence on personal modes, which run onpetroleum products (petrol and diesel) with implications for Indias energy security and CO2 emissions. It isimportant that we diversify our fuel mix in favour of clean fuels. Electrification of vehicles certainly offerssuch potential provided the electricity is generated from clean sources of energy. Going forward, it is veryimportant that any plan for electric vehicles is implemented in an integrated manner in consonance with ourplans for electricity generation and distribution and urban infrastructure planning. Major R&D initiatives areneeded to ensure that the penetration of electric vehicles is accelerated. All key stakeholders includingindustry, government, and financial institutions will have to work together in this endeavour.I compliment YES BANK for undertaking this study and for publication of this Knowledge Paper.Dr R K PachauriDirector-General, TERI
  3. 3. FOREWORDThis well-researched knowledge paper advocates the incremental transition of privatetransportation in India - from being driven by the internal combustion engine to electric drivetrains.YES BANK and TERI BCSD are of the strong view that this revolution in Indian personaltransportation will open up significant business avenues, and corresponding financingopportunities. It will also address the critical issues of Indias long term energy security andreduce the environmental impact of fossil fuel driven vehicles, though only at the tailpipe.However, there are some ground realities in India and globally that will remain long termchallenges for the widespread uptake in electric vehicles (EV). The technology which makescomplete electric mobility possible and financially viable, from an Original EquipmentManufacturers (OEMs) perspective, already exists in the Indian scenario. Technologyimprovements in battery capacity, fast charging facilities and vehicle range are rapid and dynamic,with many OEMS and other companies in the EV value chain already investing significant amountsin research and development (R&D), and scaling manufacturing capacities. EVs have arrivedglobally and most certainly in India with companies like Mahindra REVA championing the EV fourwheeler (4W) space and Hero Group dominating the EV two wheeler (2W) segment.The rising price of crude in the international market has become an energy security concern forthe country. Are EVs the silver bullet to securing Indias energy future and reducing carbonemissions of its transportation sector? This is a difficult question to explicitly answer. While on onehand, the mainstreaming of EVs will dramatically reduce Indias reliance on imported crude oil, onthe other hand, EVs, if disruptively introduced, will be charged by Indias crumbling and inefficientelectricity grid which is predominantly powered by imported coal. Therefore, whether EVs willstrengthen Indias energy and climate security is a catch 22 question, in case the status quoremains. The question then is - How do we change the status quo? For this, there is a need for acomprehensive policy roadmap towards private vehicle electrification wherein the financial sectorand Government of India (GoI) play interdependent roles to develop critical and enabling EVinfrastructure and incentivize OEMs and organisations along the value chain, to innovate andcollectively work towards introducing EV 4W & 2W EV variants, thereby giving the consumer achoice.I firmly believe that the contents of this knowledge paper will provide important insights to policymakers in achieving a smooth and incremental transition to EVs, thus ensuring Indias long termenergy security.Thank You.Sincerely,Rana KapoorFounder, Managing Director & CEO
  4. 4. PrefaceThe findings of this paper will be of particular interest to 3 key stakeholders: The financial sector, policymakers and the automobile industry.For the Financial Sector:The premise of this paper is that the financial sector will not fund companies that fall in a value chainwhose risks and business models are not fully understood. Therefore the key objective of the paper isto clearly outline the EV value chain, the perceived risks along the value chain and highlight somefinancial tools and business solutions that could be modified specifically for de-risking and thereforefacilitate the financing of EV growth in India.For the Indian Government and Policy Makers:Our key insight emanating from this report is that the Indian customer does not need to be directlyincentivized by the Government of India (GoI) and State Governments to buy EVs, as is currently thecase. The Indian consumer is price, fuel economy and style conscious and will therefore appreciate thelong term savings of EV versus Internal Combustion Engine (ICE). In which case, growth of the EVvalue chain must be fuelled by organic consumer demand, and not pushed by unsustainableGovernment subsidies for consumers, to drive EV purchases. This would defeat the purpose ofreducing strains on Indias Balance of Payments. Organic consumer demand can only be fostered bythe Government, working in collaboration with the private sector to invest in an economically enablingenvironment for rapid EV adoption, which entails the following:• Develop Clean & Energy Efficient fast charging infrastructure – Consumers will not buy EVs if they are unable to charge them whilst in urban transit. Range anxiety inhibits the consumers decision making process and this is well documented by numerous reports. Therefore, the Government must invest in clean & energy efficient fast charging infrastructure that will perceptually give urban consumers the comfort in buying EVs. Clean & Energy efficient fast charging infrastructure will comprise of, in a phased manner, smart grids and metering, renewable energy (RE) feeds and fast charging ports. Smart grids will not only accommodate EV charging point applications, but will also reduce energy wastage by the grid in general. EVs will not mainstream in India until and unless primary yet significant GoI led investments are made firstly in smart grid adoption, followed by plug in applications like RE feeds & fast charging ports. Direct GoI investments and public private partnership (PPP) models can be explored accordingly to hive off the financial investment component to the private sector.• Financially incentivise Indian Banks to fund India EV OEM manufacturers, Battery R&D, Fast charging R&D & Smart grid projects – Launch a Government sponsored fund, inviting applications from commercial banks, specifically for low interest forward lending, partial project risk guarantees and co-equity investments.For Indian Automobile companies:PRUDENCE - Innovate and take incremental steps towards full automobile electrification. Competitionin the Indian EV and hybrid market will transform the Indian consumers perception in the years tocome where foreign competitors and early bird Indian companies will grab dominant 4W EV & 2W EVmarket shares.
  5. 5. CONTENTS1 Introduction: The Case for Sustainable Personal Transport in India 1 1.1 Energy Security 3 1.2 Climate Change 5 1.3 Road Transport Emissions in India 6 1.4 Trends in Personal Road Transport in India 7 1.5 Modal Shifts 92 Sustainable Personal Transportation 13 2.1 Technological Innovations in Low-Carbon Transport 14 2.2 Pathway to Zero-Emission Vehicles 203 The Electric Vehicle Value Chain 23 3.1 Raw Material Suppliers 24 3.2 Traditional Component Suppliers 25 3.3 Battery Manufactures & Suppliers 25 3.4 Original Equipment Manufacturers (OEMs) 26 3.5 Utilities 26 3.6 The Electric Vehicle Ecosystem 274 Policies Promoting Electric Vehicles in India 31 4.1 Initiatives by the Ministry of New and Renewable Energy 32 4.2 Initiatives in the 2011-2012 Budget 33 4.3 Initiatives by the Ministry of Heavy Industries 33 and Public Enterprises 4.4 Government Agencies to take up EV Mobility in India 34
  6. 6. CONTENTS5 Development of EV Charging Infrastructure in India 37 5.1 EV Charging Infrastructure: Past Efforts 38 5.2 Comparison with Compressed Natural Gas (CNG) 39 Infrastructure 5.3 Indias Power Sector 39 5.4 Smart Grids 41 5.5 Requirements for Smart Grid Deployment 436 Emerging Business Models 45 6.1 Direct Vehicle Sales 46 6.2 EV Leasing 47 6.3 Battery Leasing and Swap Schemes 47 6.4 Infrastructure Service Models 487 Analysis and Thought 51 7.1 Short Term Horizon 52 7.2 Long Term Horizon 52 7.3 Concluding Thoughts 54
  7. 7. Introduction: The Case forSustainable Personal Transport in India
  8. 8. Introduction: The Case for Sustainable Personal Transport in India “The mobility model we have today will not work tomorrow” - Bill Ford, great-grandson of Henry Ford and Executive Chairman of the Ford Motor Company Indias population is expected to surpass that of Chinas in 2030, making it the most populous county in the world. High economic growth rates and the impacts of globalization have concentrated prosperity in urban centers resulting in sprawl and auto-mobilization. Within 15 years the population residing in urban areas is expected to double to over 700 million [1] due to distressed rural to urban migration and other factors. This will place additional pressures on urban infrastructure, which is already overburdened. Projections indicate that by 2021 India will have the largest concentration of megacities in the world with a population exceeding 10 million. Out of a total of 88 cities, with a population of more than half a million in 2011, only 28 have any formal public transportation system. In most cases, the existing public transport systems are ageing and stretched beyond capacity, as the demand for public transport services outstrips supply, both qualitatively and quantitatively. As disposable income increases, a result of economic growth, those entering the middle-class are able to afford and prefer personal vehicles, as it is a symbol of upward social mobility, and also provides greater comfort, flexibility and convenience. In the absence of proper planning measures, the dynamics between increasing numbers of vehicles as well as a growing population wanting to use private vehicles for transport are likely to pressurize transport infrastructure, leading to inefficiencies as a result of infrastructural bottlenecks such as traffic congestion, gridlocks and slower train speeds. This would result in higher traffic management costs and greater energy consumption, therefore significantly increasing carbon emissions from transportation. The growth in motor vehicles is much faster than the population and faster than the GDP with 5% annual growth in motorcycles/scooter and 14% annual growth in cars [2].2 Electric Vehicles in India: Challenges and Opportunities
  9. 9. If current ICE uptake trends continue, developing countries like India are faced with unsustainablefutures that are likely to have negative triple bottom line impacts. Considering the stage ofeconomic development in India, the country has a unique opportunity to develop sustainably bymanaging emissions growth, enhancing energy security and by supporting the creation of a worldclass clean-technology industry. The time is ripe to explore a range of potentially promisingsolutions to redirect the economy towards a path which is sustainable and secure.1.1 Energy SecurityBeginning with economic liberalization in 1991, the consistent growth and globalization of theIndian economy thereafter, energy consumption in India has grown exponentially. Increasingurbanization, infrastructural development and concentration of economic activities in certain loadcenters have resulted in higher mobility fuelled by a rapid increase in number of vehicles anddistances travelled. The growing demand for energy is being addressed largely though oil imports,where India is currently the 5th largest oil importer in the world. India simply does not possessadequate oil reserves to meet current and future demand. 72% of the oil consumed in India in2007 was imported and this is projected to rise sharply to over 90% by 2030 [3]. High oil pricesresult in negative feedback loops that weaken stock prices and tighten fiscal conditions, therebydepressing economic growth in the long term.The growth of the Indian economy is impacted by the price of oil imports, which tends to beextremely volatile and sensitive to economic and political shifts. As a result of the globalrecession, oil prices rose to a record peak of INR 7 ,830 per barrel (USD 145) in July 2008 (Exhibit1) and the Brent Crude oil price hit INR 5,400 per barrel (USD 100) on 31st January, 2011 due tothe political upheaval in Egypt [4]. The growth in demand for oil from BRICS (Brazil, Russia, India,China & South Africa) nations and other emerging economies coupled with a decrease in thediscovery of new exploitable oil fields will push up oil prices up over the next few decades. Thiswould further exacerbate the budget deficit, dampening economic growth.Exhibit 1: Oil price fluctuations (USD), 1987 – 2011 [19] 140 Nominal Real (April 2011 US dollars) 120 May 1987-April 2011 monthly average Brent spot prices Conversion to April 2011 dollars uses US CPI for AII Urban Consumers (CPI-U) 100 80 60 40 20 0 Jan 2011 Jan 2001 Jan 2002 Jan 2003 May 1987 Jan 2010 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2000 Jan 1988 Jan 1989 Jan 1990 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2004Source: IEA (International Energy Agency), (2009), Key World Statistics Electric Vehicles in India: Challenges and Opportunities 3
  10. 10. The transport sector is a key consumer of oil and oil products. More than 50% of the oil consumption in India occurs on account of transport-related activities [85]. The World Energy Outlook has estimated that most of the increase in oil consumption by 2030 in India will be driven by light-duty vehicles, mainly passenger cars – growing at an annual rate of approximately 10% (Exhibit 2) [5]. Exhibit 2: Energy usage worldwide, industry break up and light duty vehicle depictions [19] PROJECTED INCREMENTAL OIL TOTAL STOCK OF LIGHT-DUTY DEMAND BY SECTOR, 2006-30 (MTI) VEHICLES BY REGION (bn) 2.5 x3 600 2.0 Africa Latin America 400 Middle East 1.5 India x2 Other Asia 200 China 1.0 Eastern Europe EECCA 0 OECD Pacific 0.5 OECD Europe -200 Transport Industry Non-energy Other OECD N. America USE 0 Rest of world Other Asia India 2000 2010 2020 2030 2040 2050 China OECD Source: IEA (International Energy Agency), (2009), Key World Statistics A significant question to ask at this juncture is whether the world can continue generating a sufficient supply of oil in the coming decades to accommodate the rise in demand from emerging economies like India and China, without hampering environmental quality? Until recently Governments and businesses have ignored the phenomenon of peak oil. Peak oil refers to the point at which the maximum rate of global oil extraction is reached. However, there has been growing acceptance of peak oil in the public domain, where both Governments and businesses have been exploring alternative sources of energy supply, primarily renewable sources like solar, wind, hydro, geo-thermal and nuclear energy. The oil industry is beginning to realize that we have crossed “the era of easy oil, (and) in the future oil will be dirtier, deeper and far more challenging (to extract)”[5]. Technologies that have the potential to phase-out oil dependent forms of transportation should be actively pursued to gauge their feasibility.4 Electric Vehicles in India: Challenges and Opportunities
  11. 11. 1.2 Climate ChangeClimate Change has emerged as one of the most pressing issues for Governments andpolicymakers. This issue has drawn unprecedented global collaboration between scientists andpolicy makers through the United Nations Framework Convention on Climate Change (UNFCCC)treaty that has been signed by 194 nations (as of May, 2011). According to the Fourth AssessmentReport of the United Nations Intergovernmental Panel on Climate Change, warming of the planetis unequivocal and it is very likely that the rise in global average temperatures is due to theobserved increase in anthropogenic greenhouse gas (GhG) concentrations [6].The World Meteorological Organization (WMO) reported that 2010 was the hottest year onrecords since 1880, tied with 2005, and the difference was less than a margin of uncertainty [7].This is evidence of a warming trend that continues to be strengthened (Exhibit 3). Consensusamong the scientific community tells us that we must reduce greenhouse gases by 50% by 2050to prevent the worst impacts of climate change [8].Exhibit 3: Global temperature anomalies (°C) [6] Global Temperature Anomalies 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 1880 1900 1920 1940 1960 1980 2000 YearSource: IPCC (Intergovernmental Panel on Climate Change), (2007), Summary for Policy MakersSince the transportation sector is one of the largest and fastest growing sources of GhGemissions, decoupling growth in transport from increasing GhG emissions presents a clearchallenge for policy makers in India. EVs, in particular, can have a significant impact towardscutting down demand for oil imports and reducing carbon emissions arising from roadtransportation, only if electricity is derived from hydro and renewable [9]. Electric Vehicles in India: Challenges and Opportunities 5
  12. 12. 1.3 Road Transport Emissions in India India is the fourth largest GhG emitter in the world. The transport sector is the fourth largest contributor of greenhouse gases in India with a share of 7 .5% of the emissions in the country preceded by electricity generation (37.8%), agriculture (17.6%) and industry (8.7%) [11]. India has witnessed a 200-fold increase in vehicle numbers between 1951 and 2011. Road transport is the largest contributor of GhG emissions and was responsible for 87% (123.5 Mt CO2e) of the total emissions arising from the transport sector in 2007 Currently passenger . vehicles that include two wheelers and four wheelers are responsible for about 30% to 35% of the total road transport emissions (Exhibit 4). Exhibit 4: Road Transport: CO2e emissions by Fuel type – 2007 [12] 2% 15% Buses/Cars/Taxi/3W (CNG+LPG) 2W/3W (Petrol) 55% Cars/Taxi/Jeep (Petrol+Diesel) 28% Commercial Vehicles: Trucks/Buses/LCV (Diesel) Source: Transport Sector: Greenhouse Gas Emissions 2007 Central Road Research Institute, New Delhi, INCCA , Over the next decade, the number of passenger vehicles on the road is expected to rise sharply, approximately 14% y-o-y. According to the IEA/SMP transportation model reference case (using 2003-04 as the base year), emissions from passenger cars are likely to grow at 5% per annum in India [13]. Even if engine efficiencies improve, the sheer growth in the number of vehicles on the road would lead to an absolute increase in GhG emissions from road transport.6 Electric Vehicles in India: Challenges and Opportunities
  13. 13. Exhibit 5: Expected growth in CO2 emissions in India from different transportmodes [13] 800 700 Water 600 Frieght rail Freight trucks Megatonnes C O2 500 Air Pass rail 400 Buses 3-wheelers 300 2-wheelers Pass cars 200 100 0 0 10 20 30 40 50 5 15 25 5 5 0 0 3 4 20 20 20 20 20 20 20 20 20 20 20Source: Mobility at What Cost?,InfoChange Agenda1.4 Trends in Personal Road Transport in IndiaThe Indian road network is the second largest in the world, covering 3.34 million kilometers whereas much as 80% of passenger traffic is carried by the roads [14].The high growth rates of the Indian economy have resulted in an unprecedented rise in disposableincomes and this has contributed towards a burgeoning automotive industry. With the Indianeconomy projected to grow at an average of 8-9% per annum over the middle term, thepercentage of Indian consumers that are able to afford vehicles is likely to increase. Yet, Indias carper capita ratio (i.e. number of cars per 1000 persons) is the lowest among the worlds five largestautomobile markets (Exhibit 6), pegged at 18 cars per 1000 people. The share of public transporthas been declining slowly as a result of the growth in private vehicle ownership, fuelled byexpanding urbanization and affluence. Electric Vehicles in India: Challenges and Opportunities 7
  14. 14. Exhibit 6: Cars per 1,000 population (country breakup) & socio economic strata growth in India [15] Cars per, 000 population (2007) Number of households (000) 800 41 -6% Germany 600 Italy 65.2 Spain France 140.7 USA 3% 400 UK Japan 109.2 200 Russia Brazil 16% 46.7 India 13.8 China 2001-02 2009-10 0 20 40 60 140 High Income Middle Income Mn. Cars (2007) (>Rs, 180K per month) (INR 45K per month) Low Income (<INR 45K per month) Source: The Indian Automotive Industry: Evolving Dynamics, KPMG India Existing transport infrastructure has however, proven to be grossly inadequate to meet these demands. The reason for the same is reflected in a study conducted by the Ministry of Urban Development, Government of India and Wilbur Smith Associates [16]. The study estimated that total intra-city passenger transport activities (passenger kilometers) across 87 cities, including state capitals and cities with populations greater than 0.5 million (2008), was growing at a rate of about 5.5% per annum between 2007-11 as compared to a population growth rate of about 2.6% per annum in the same period of time. It is estimated that the increase in passenger activities would continue to grow at an even higher rate of about 7 .6% per annum between 2011 and 2031. The dynamic interactions between personal vehicle penetration, rising incomes, increasing affordability of cars and expanding export opportunities is expected to position the Indian automobile industry for growth. The Indian automobile industry has recovered from the recession registering record sales in 2009-10 and it contributed almost 4% of Indias Gross Domestic Product [15] and recent estimates suggest that the output of the industry is expected to reach 4 million units by 2013 [17] supported by infra structural developments and favorable Government policies. The automotive market remains cost-conscious in India. The primary decision point for car buyers in India continues to be the upfront purchase price of vehicles, whereas fuel efficiency has historically been a secondary concern, though the implied effect is evident due to a preference for small and cheap cars. Having stated that, the luxury car market in India has shown compounded annual growth rate of 30-40% over the last 4 years [18]. This statistic challenges the notion that the Indian consumer will remain predominantly price conscious in the long term. However, as fuel costs rise, we can expect increasing consumer importance and emphasis on fuel efficiency in purchase decisions.8 Electric Vehicles in India: Challenges and Opportunities
  15. 15. 1.5 Modal ShiftsThe rapid growth of demand for passenger mobility in Indian cities has not been matched by anequal increase in supply of transport infrastructure and services. This has resulted in the increaseduse of private vehicles across most urban centres accompanied by declining share of publictransport systems. In addition, with expanding cities, the share of pedestrians, cyclists and non-motorized transport users has also fallen, as seen in Exhibit 7 8 and 9. ,Exhibit 7: Growth in passenger vehicles Exhibit 8: Change in public transportin India (mn) from 1981 to 2009 shares between 1994 to 2007 [16] Growth of registered motor vehicles in India Share of public transport in India 90 80 Two-wheelers 70 1994 2007 80 Cars, jeeps, taxis 60 PT share (%) 70 Buses 60 50 50 40 40 30 30 20 20 10 10 0 0 <0.5 0.5 to 1 1 to 2 2 to 4 4 to 8 >8 1981 1991 2001 2009 City population size (in million)Source: MoRTH Yearbooks Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban Development), (2008), Study on Traffic & Transportation Policies and Strategies in Urban Areas in India, as cited in TERI, (2012)Exhibit 9: Changing shares of walk trips between 1994 and 2007 [16] 60 1994 2007 % Share of 40 walktrips 20 0 <.5 .5-1 1-2 2-4 4-8 Above 8 City population size (in mn)Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban Development), (2008), Study on Traffic & Transportation Policiesand Strategies in Urban Areas in India, as cited in TERI, (2012)In India, the transportation sector is responsible for nearly 20% of the total energy consumptionand is the second largest consumer of energy in the country after industry [19]. A significantamount of road based passenger transport activities in the country are concentrated in cities. Theon-road passenger transport activities in urban India are responsible for nearly 40% of the totalenergy consumption in road passenger transport sector [20]. Electric Vehicles in India: Challenges and Opportunities 9
  16. 16. The current trends in urban transport, which are primarily a result of the inability of Indian cities to meet the increasing transport demand in a planned manner, have resulted in local problems related to congestion, deterioration of air quality, increase in number of road fatalities and accidents and loss in economic productivity. The congestion levels in many Indian cities have reached unmanageable proportions, the average vehicle speeds dropping down to as low as 10 km/hour in many cities. This leads to higher fuel consumption due to low speeds and vehicle idling [21]. Considering an oil constrained future and the high emission levels associated with the transport sector, it is therefore important to reduce the use of petroleum dependent private vehicles in the country. In the 1950s and early 1960s, private vehicles were less in number and road transport served as a mode complimentary to public transportation. By the late 1990s the share of road transport in cities was as much as 80% in passenger traffic [21]. The modal split has shifted in favor of road transport, away from energy efficient modes like railways and buses that have a lower carbon footprint. For example, in Delhi the modal share of public transport has dropped from 60% in 2000 to 43% in 2008 [22]. This is a likely trend not only in most megacities but also Tier II and Tier III cities that are characterized by poor transport services and infrastructure. Only 20 cities in the country have an organized public bus service [23], which in most cases are inadequate leading to an increased dependence on personal modes of transport. Exhibit 10: Comparison of Vehicular Growth with Population Growth 140000 120000 100000 80000 60000 40000 20000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Population** 102874 102761 104353 106002 108900 110600 112200 113800 115400 Public Buses* 114.9 114.6 115.2 115.7 113.2 112.1 107.8 113.6 117.6 Cars/Taxis/Jeeps* 7058 7613 8599 9451 10320 11526 12649 13950 15313 2W* 38556 41581 47525 51922 58799 64743 69129 75336 82402 PCI 40678 42375 45337 49004 54505 60951 70238 78790 88420 Source: Indiastats.com10 Electric Vehicles in India: Challenges and Opportunities
  17. 17. The growth in personal vehicle ownership will continue to accelerate with increasing incomes,greater availability, as well as access to credit and decreasing vehicle cost, case in point being theTata Nano which has enjoyed an increase in sales, 5.8%, over 2011-2012 [24].Exhibit 10 indicates a growing reliance on personal modes of transport (cars and two-wheelers)and intermediate modes of transport (taxis and auto-rickshaws) driven by the doubling of per-capita incomes from 2001 to 2009. Over the same period the number of public buses hasremained relatively constant considering a rise in population of approximately 125 million. Thisdata suggests a growing trend towards a reliance on personal modes of transport due to theburgeoning middle class, a lack of urban planning and minimal investments by the Governmenttowards improving public transportation.Bus services in particular have deteriorated because public transport service providers are unableto expand services, both in terms of number of buses and number of routes plying. The share ofbuses is negligible when compared to private/personalized vehicles in most Indian cities.Overcrowding of the public transportation system is particularly evident in large cities, wherebuses and trains carry more than twice their optimal capacity. As a result we have seen a massiveshift towards personalized transport, particularly two-wheelers, and the growing use ofintermediate modes such as taxis and three-wheeler auto-rickshaws [25].At this juncture, it should be noted that the Government has drawn plans to improve local railnetworks in urban cities by improving access and expanding existing capacity. Other urbantransport planning initiatives include bus-rapid-transport-systems (BRTS), pedestrian zones,skywalks and cycling paths. Delhi, Mumbai, Kolkata, Chennai and Hyderabad are in differentphases of planning or implementing light-duty metro rail services to complement existing modesof public transport. It is envisaged that these plans will have some impact on increasing the shareof public transport. However given Indias low motorization index and the lack of adequateinvestments in public transport, the country is further expected to exhibit growth in light dutypersonal vehicles.India will be faced with the complex problem of convincing people not to use their vehiclesbecause this would increase the demand for oil imports - adding to the budget deficit whilecontributing to the countrys growing carbon footprint. Therefore, the only way to really shiftpopulation mindsets is by making public transportation networks extensive, accessible and safer.In the interim, alternative modes of sustainable personal transportation must be explored totackle the immediate socio-environmental impacts of the Internal Combustion Engine. Electric Vehicles in India: Challenges and Opportunities 11
  18. 18. Sustainable Personal Transportation
  19. 19. Sustainable Personal Transportation Sustainable transport systems aim to reduce emissions, fossil fuel consumption and minimize the land area requirements, while providing easy access to people to enable efficient mobility [25]. Vehicles that run on alternative sources of energy such as solar, bio-fuels, fuel cells and batteries have been developed, demonstrated and in some cases they have entered markets and are already on the roads. 2.1 Technological Innovations in Low-Carbon Transport A brief overview of key innovations in low-carbon vehicles that are being actively pursued in India: 1. Electric Vehicles (EV) EVs utilize electric motors to induce propulsion. The key differentiator between EVs and conventional ICE vehicles is that the electricity that they consume can be derived from different sources or a combination of energy sources, particularly renewables such as solar and wind energy. Electric vehicles are only as green as the energy sources used to charge them. Charging EVs in India remains a challenge, where 60% of electricity is generated from fossil fuels fired coal power plants [26]. Electricity can be transmitted to EVs wirelessly through induction or directly using an electrical cable. EVs utilize on-board batteries to store electricity. Unlike ICEs, EVs are capable of regenerative braking whereby they are able to recover the energy that is lost during braking as electricity that is then stored back into the on-board battery. They do not have any tail-pipe or evaporative emissions and are virtually maintenance free. There has been a renewed14 Electric Vehicles in India: Challenges and Opportunities
  20. 20. interest in EVs as a solution to address the emerging concerns around energy security andclimate change. There are almost 40 new production ready electric vehicles and hybrid vehicleslaunching by 2013.2. Bio-fuelsBio-fuels are broadly defined as “fuels that are produced directly or indirectly from organicmaterial – biomass – including plant materials and animal waste” [27]. Efficiency improvements inconversion technology now permit the extraction of bio-fuels from a wide variety of sources,particularly, wood, crops and waste materials. Bioethanol and biodiesel are the two mostcommonly available types of biofuels. Biofuels have been around since the invention of theautomobile but were largely displaced by the discovery of huge deposits of oil that kept petroland diesel prices cheap for decades.Bio-fuels are a renewable resource as more plants can be grown for conversion into fuel, with theadded advantage that the plants sequester carbon as they grow. Over the last decade there hasbeen much debate about the relative pros and cons of focusing on biofuels as a viable solutionbased on a range of economic, social, environmental and technical issues. The large scaleproduction of bio-fuel for transportation would require large land areas; as a result its potential toreplace fossil fuels is limited. However, innovative approaches like using seaweed to producebiofuels might address the food vs. fuel debate and lead to breakthroughs.The current world production of biofuels is less than 1% of world transport fuel demand and Indiacontributed about 0.6% of global biofuels production in 2009 [28]. In India, bio-fuels have anassured market as the Government, through the National Biofuel Policy, aims to meet 20% ofdiesel with fuel derived from plants. In 2009, the Government of India mandated 5% blending ofethanol with petrol across India, which is projected to annually save 80 million liters of petrol [29].3. Compressed Natural Gas (CNG)Vehicles are increasingly using compressed natural gas (CNG), or less commonly liquefied naturalgas (LNG), as an alternative to conventional fuels as it is cheaper and cleaner. In 2010, there were~12.6 million CNG/LNG vehicles plying the roads worldwide with India ranked 5th, with a totalfleet of approximately 1.08 million vehicles [30]. Existing petrol or diesel vehicles can be easilymodified to run on CNG at an average cost of INR 20,000 [31] for petrol vehicles and about INR50,000 for diesel vehicles. CNG is one of the more promising alternative fuels due to itsabundance and zero emissions. The strongest driver of CNG development has been its favorableeconomics i.e. the price advantage of CNG over conventional fuels.CNG as a transport fuel has been actively promoted by the Government of India throughmandates and targets. The CNG programs in Delhi and Mumbai are the oldest and well matured,driven by public policy mandates and a strong commercial interest of large taxi fleets in fuel/costsavings. The Ministry of Environment and Forests recently stated that approximately 70% of intra- Electric Vehicles in India: Challenges and Opportunities 15
  21. 21. city public buses use CNG as fuel [32]. Rising petrol and diesel prices have stimulated demand for CNG vehicles and many auto majors like Maruti-Suzuki, Tata Motors, Chevrolet, Toyota, Hyundai, among others, have introduced factory fitted CNG vehicles of their popular models in the Indian market. 4. Hydrogen Fuel Vehicles (HFV) Hydrogen vehicles internally convert the chemical energy from hydrogen to mechanical energy for propulsion either through burning hydrogen in an internal combustion engine or through reactions between hydrogen and oxygen in fuel cells that run electric motors. Hydrogen vehicles are divided by two different technological approaches, namely - i. Hydrogen-ICE: Existing cars that run on petrol and diesel can be modified to use hydrogen as a fuel in their internal engines. ii. Hydrogen Fuel Cell: Hydrogen fuel cell cars are essentially electric vehicles that use hydrogen fuel cells instead of battery packs for power. Hydrogen has proved to be an attractive fuel as it has excellent electro-chemical reactivity, adequate power density to enable automobile propulsion and zero tail-pipe emissions [33]. Hydrogen can be produced using a wide variety of sources such as natural gas, coal, biomass, geothermal, solar and wind, which makes it an important energy carrier from an energy-security stand point. Most automobile majors have invested in developing prototypes and are at various stages of testing commercial feasibility of HFV. Though HFVs are considered to be zero emission vehicles, they do have well to wheel (total lifecycle) emissions, as most of the hydrogen used is produced from natural gas. Though HFCVs tend to outperform battery electric vehicles in terms of range and refueling time, they yet face significant technical and economic hurdles that critics, like Nobel laureates Steven Chu and Burt Richter, say would not be overcome in the near future [34]. Most research tends to support a hydrogen economy as a long term option as the hydrogen option suffers from several uncertainties around system and infrastructure costs and is not likely to be available en-mass in the foreseeable future, i.e. before 2020. In India, the Planning Commission has constituted working groups to look at hydrogen as a viable fuel. The Ministry of Petroleum and Natural Gas created a INR 100 cr. (USD 18.5mn) fund for research and development of hydrogen technologies. Other efforts include - The Green Initiative for Future Transport (GIFT), which aims to research, develop and demonstrate hydrogen fuel cell vehicles, with goals and targets up to 2020. India is also one for the 16 founding members of the International Partnership on Hydrogen Economy set up in Washington D.C., on November 2003 and has also prepared a National Hydrogen Energy Road Map and Programme (2006) focusing on two and three-wheelers [35]. Few Indian vehicles manufactures like Mahindra and Tata Motors, in16 Electric Vehicles in India: Challenges and Opportunities
  22. 22. partnership with research institutes have developed prototypes of hydrogen vehicles to test theirfeasibility in the Indian market.5. Hybrid/Dual Fuel Vehicles (HFV)Hybrid/Dual Fuel Vehicles are defined as vehicles that use two or more distinct fuel sources, or amixture of fuels, for power and propulsion. HFVs are viewed as a transition technology to bridgethe gap towards zero-emission vehicles because they provide consumers with flexibility in termsof fuel costs, refueling time, driving distances and emission reductions [37]. They tend to becleaner and are more fuel-efficient than conventional vehicles that use an ICE, the extent of whichdepends on the combination of fuel sources used. Many different combinations of fuel sourceshave been developed and tested for vehicles.Hybrid vehicles typically ensure savings in terms of fuel economy and emissions due to thefollowing:i. Relying on both engines and electric motors for their power needs, as this reduces the size and weight of engines resulting in less internal losses.ii. The tank-to-wheel efficiency of electric motors is also significantly higher than ICEs.iii. Batteries have the capacity to efficiently store, reuse and recapture energy, through technologies like regenerative breaking that save energy normally wasted as heat during braking.iv. Vehicles use blended fuels, like ethanol added to petrol or hydrogen mixed with CNG, as the addition of low emission fuels to conventional fuels reduces the total fuel emission factor.Exhibit 11: Various fuel combinations being pursued through Government initiativesand by automobile manufactures Hybrid and Dual Fuel Vehicles Blended Fuels Dual Fuels Liquid Gaseous CNG Electric + + Hydrogen +CNG Gasoline Gasoline Biofuel +Gasoline (Hy-thane)Source: YES BANK Analysis Electric Vehicles in India: Challenges and Opportunities 17
  23. 23. The Government of India, in partnership with automobile manufacturers and research institutes, has been exploring the feasibility of blended fuels and dual fuel vehicles. The future will most likely see a combination of solutions being used for different purposes based on their relative suitability. For example, while dual fuel vehicles might be promoted in densely populated urban environment that have the required recharging/refueling infrastructure, vehicles running on a mix of gasoline and ethanol might be suited to inter-city mobility or long distance journeys where recharging infrastructure for electric vehicles or CNG refueling facilities are absent. The Ministry of New and Renewable Energy, along with SIAM, IOCL, Tata Motors, Ashok Leyland, Eicher Motors, Mahindra and Mahindra and Bajaj Auto, have supported a unique project for demonstrating a hybrid Hythane (H-CNG) model, using up to 30% of hydrogen and CNG, in cars, buses and three-wheelers[35]. 6. Advanced Internal Combustion Engine (AICE) Vehicles that utilize new technologies to improve the overall engine efficiency and reduce emissions of internal combustion engine vehicles are collectively called Advanced Internal Combustion Engine (AICE) vehicles. Automobile manufacturers constantly strive to improve the efficiency of ICE vehicles to reduce energy loss, improve mileage, reduce tail-pipe emissions and ultimately lower the cost of operation. The Government of India has also driven engine efficiency improvements by imposing the Bharat Stage (BS) emissions standards, which are progressively updated. They stipulate emissions limits for different vehicles categories. Automobile manufacturers must meet the stipulated criteria as they are mandatory. In cost-conscious markets like India, a key decision point for consumers is the total cost of ownership of vehicles – which includes the price of the vehicles, the cost of fuel, and maintenance costs. Cars that have a higher efficiency require comparatively less fuel to travel a particular distance. As a result their fuel consumption and running costs are less. However, it is important to consider the rebound effect, formally referred to as the Khazzoom-Brookes postulate [37], that has been confirmed by a wide range of studies and indicates that when energy prices are constant, cost effective efficiency improvements will increase economy-wide energy consumption above what it would have been without those improvements or in simpler terms - “greater the efficiency of a process, the greater the energy use” [5]. The Kazzoom-Brookes postulate clearly suggests that energy efficiency improvements in the automobile sector would not suffice to meet future transportation goals (i.e. de-carbonization of the transport sector), as they would invariably lead to an absolute increase in energy/fuel consumption and thus carbon emissions [37]. Advanced ICEs are not an end solution but they will play an important role as an intermediate wedge until other low-carbon alternatives like EVs and HFVs achieve scale and market penetration.18 Electric Vehicles in India: Challenges and Opportunities
  24. 24. Exhibit 12: Fuel type impact analysisComparison of Alternative Transport Technologies in India Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/ Hythane Main fuel Crude oil Crude oil Soy bean oil, Corn, grains or Underground Coal; however Natural gas, source rapeseed oil, agricultural reserves there are a methanol, waste cooking waste range of other energy oil, animal fats (sugarcane sources that sources molasses) include including nuclear, natural renewables gas, hydroelectric and renewables.Physical state Liquid Liquid Liquid Liquid Compressed Electricity Compressed gas gas Types of All types of Most types of Any vehicle Light duty Many types of Neighborhood No vehicles Vehicles vehicles vehicle that runs on vehicles, vehicle electric available for Available categories categories. diesel -no medium and categories - vehicles, commercial modifications heavy duty but most bicycles, sale; several for up to 5% trucks and require motorbikes, pilot projects blends and buses. Other modifications light-duty are currently many engines vehicles that to engines and vehicles, being are compatible can use mixed space for medium and demonstrated. with 20% fuels. storage tanks. heavy duty blends. trucks and buses. Fuel Available at all Available at all Not available at Currently Available in Charging Not available at Availability fueling fueling fuelling blended with most large facilities not fueling stations stations stations. Plans diesel or cities and available at any stations. A to introduce petrol. 5% widely across fueling demo station biodiesel ethanol Maharashtra, stations. Most has been set through the blended petrol Gujarat and homes, up at Dwarka National has been Delhi. Government in Delhi to test Biofuels introduced in facilities, the technology Policy. It is 20 states and garages and now being 8 union businesses produced territories, and have adequate locally for use will be electricity in three- extended to capacity for wheeler 10%blend pan- charging (may rickshaws. India in require slight phase2. upgrades) Refueling Refueling Refueling Existing Ethanol fuel Expansion of Need for public Delivery of Infrastructure stations are stations are fuelling dispensers can gas pipelines charging hydrogen will widely spread widely spread stations can be be easily will lead to stations at require across the across the fitted with bio- installed at greater parking lots, significant country. country. diesel pumps conventional availability of malls, fuelling investment Mature Mature fueling CNG stations and towards infrastructure infrastructure stations also in production and for the deliver for delivery of buildings infrastructure. of petrol. diesel. Hythane can make use of existing CNG infrastructure. Electric Vehicles in India: Challenges and Opportunities 19
  25. 25. Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/ Hythane Maintenance Require regular Require regular Hoses and Special High pressure Minimal In fuel cell pollution pollution seal may be lubricants may tanks require servicing applications checks, checks, affected with be required. periodic needed. No maintenance servicing, servicing, higher-percent Practices are inspection and tune-ups, oil in minimal. tune-ups, oil tune-ups, oil blends. similar to certification changes, Hydrogen- changes, changes, Lubricity is conventional timing belts, ICEs would lubrication lubrication improved over vehicles water pumps, require regular that of radiators or servicing. conventional fuel injectors. diesel Batteries need to be replaced after 3-6 years Fuel Costs INR 71/liter INR 42/liter NA INR 27/liter INR 32/kg INR 4/kWh NA (as on Sept 2012) Environment Produces Produces Reduces Can Significant Zero tail-pipe Zero regulated Impacts harmful harmful emissions and demonstrate reduction in emissions. emission for emissions. emissions and particulate up to 25% tail pipe and Some fuel cell Gasoline particulate matter when reduction in ozone forming emissions can vehicles and vehicles are matter. compared to ozone-forming emissions be attributed only NOx improving and Emissions are conventional emissions though HC to power emissions as a result being reduced diesel. when emissions may source/ possible with emissions are with after- However NOx compared to increase. generation. Hydrogen ICE being treatment emissions may petrol. vehicles. progressively devices. increase. reduced. Energy Manufactured Manufactured Bio-diesel is Ethanol is CNG is Electricity is Hydrogen can Security using mostly using mostly domestically domestically domestically generated help reduce Impacts imported oil imported oil produced and produced and produced but through coal Indias which is not a which is not a has a fossil is renewable. is limited. India fired power dependence secure option secure option energy ratio of is currently plants as it is on foreign oil 3.3 to 1 which exploring available in by being means that its options of plenty. It is the produced from impacts are importing most renewable slightly less natural gas economical resources but similar to from Iran and and price petrol Myanmar. stable fuel. (Source: YES BANK research, SIAM, Ministry of Petrolium, US Department of Energy –Alternate Fuels and Advanced Vehicle Data Center) 2.2 Pathway to Zero-Emission Vehicles The path towards Zero-Emission Vehicles (ZEVs) begins with technological modifications and enhancements to existing engines and drive-trains that improve the tank-to-wheel efficiency of vehicles. Vehicles that run on low-carbon alternative fuels such as biodiesel, ethanol, synthfuels and natural gas are categorized collectively with high efficiency ICEs as A-ICE vehicles, and they can reduce emissions by up to 10-15% [39].20 Electric Vehicles in India: Challenges and Opportunities
  26. 26. Exhibit 13: The path to electrification Electrification Hydrogen Technological Advancement Fully Electric Hybrid Fuel + Electric Natural Gas and Biofuels Advanced Internal Combustion Up to 15% 10- 30% 30-40% 50 -100 % 50 -100 % Carbon Reduction PotentialSource: YES BANK AnalysisThe next step towards ZEVs involves the electrification of vehicles. There are a wide range of EVtechnologies being explored at the moment, that include:Mild-Hybrid – It is the first real step towards electrification and ZEVs, and contains a smallüelectric motor that enables a start-stop system, facilitates regenerative braking energy tocharge the battery and offers acceleration assistance. Mild-hybrid vehicles achieve smallreductions in emissions, between 10 to 15% at relatively high costs [39]. It is viewed as anintermediate development step towards a fully-hybrid system.Fully-Hybrid – Features a larger motor and battery pack that provides the vehicle with electricülaunching, acceleration assistance and electric driving at low speeds. It can achieve amaximum of 25-30% in GhG emission reductions. Though fully-hybrids currently costbetween INR 2.5 to 3.5 lacs (USD 4629 – USD 6481) more than conventional ICE cars, thecost of hybrid components is expected to fall by 5% per year [39].Plug-in Hybrid (PHEV) – It is a hybrid vehicle with a larger battery that can be recharged byüconnecting a plug to an electric power source or grid. The ability to connect to the grid givesthe PHEV an range of 30-60 kilometers of all electric driving. PHEVs feature smaller ICE thattakes over from the all electric drive to provide a longer range. The carbon reduction potentialof a PHEV is between 30-40%. Electric Vehicles in India: Challenges and Opportunities 21
  27. 27. Range Extenders – They are all EVs that feature a small ICE that is used to recharge the ü battery to extend the driving range. This feature is useful in the absence of charging infrastructure as they combine the advantages of electric driving with the ability to undertake longer journeys. They have a carbon reduction potential of between 60-80% depending on the electricity source used to charge the battery [39]. Fully Electric – All of the needed propulsion energy is stored in a large battery that can be ü recharged by connecting it to the electricity grid. Electric vehicles are two to three times more efficient than conventional ICEs [40]. Though there are a range of different battery technologies being used, it is predicted that litium-ion batteries will dominate the landscape [40]. A fully electric vehicle is only as clean as the source of electricity that is used to recharge the battery, and when charged using renewable sources it can reduce emissions by up to 80-100%. Exhibit 14: GhG emissions from various fuel sources [42] Greenhouse Gas Pollution (Light duty vehicles only) (Billion/tonnes CO2-equivalent/year) 100% Gasoline ICVs 2.5 Base Case: Gasoline Hybrid Scenario 2.0 Gasoline Plug-In 1.5 Hybrid Scenario 1990 LDV GHC Ethanol Plug-In 1.0 Hybrid Scenario GhG Goal: 60% below BEV 1990 Pollution Scenario 0.5 H2 ICE HEV GhG Goal: 80% below 1990 Scenario Pollution - Fuel Cell 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Vehicle Scenario Source: Zhang & Cooke, 201022 Electric Vehicles in India: Challenges and Opportunities
  28. 28. The Electric Vehicle Value Chain
  29. 29. The Electric Vehicle Value Chain The stimulus for a technological shift towards electric vehicles in India, as is the case among most comparable markets, depends on improved battery technologies, longer ranges, better charging infrastructure, lower prices, Government incentives and progressive regulation. While electric vehicles offer a great opportunity to diversify across the value chain, they also pose significant risks as the technology could change the dynamics of the industry and cede large parts of the value chain that has evolved over several decades obsolete [43]. In order to grasp the changing landscape of the EV sector it is important to understand the different actors across its value chain and the relationships they share – Exhibit 15: The EV value chain Traditional Utilities / Raw Material Battery Component OEMS Infrastructure Suppliers Suppliers Suppliers Source:YES BANK Analysis 3.1 Raw Material Suppliers Raw materials have a high impact on cost structures of the automobile sector. Raw material suppliers face a host of challenges that include rising prices, fluctuating prices, discriminatory pricing by foreign vendors of Indian component manufacturers/exporters and custom free import of finished goods from ASEAN countries under various free trade agreements [44]. Steel is one24 Electric Vehicles in India: Challenges and Opportunities
  30. 30. of the primary raw materials used in the manufacture of automobiles and its price has risenbetween 25% to 40% for specific products like flat, long and pig iron which are commonly usedby vehicle manufacturers. Ironically, even though India is one of the cheapest sources of iron ore,steel prices are high when compared to international standards. The Government of India mustconsider enforcing competitive policies that contain the price of steel against global steel pricesby regulating the export of steel, monitoring steel price and lowering import duty to widen accessto cheap steel sources outside India (IDC, 2008) [45]. Other raw materials like plastics and lithium(for batteries), a rare earth metal, are also plagued by global price fluctuations. Given the growthin demand for lithium batteries, that are used in common electronics and appliances like mobilephones and laptops, the price of lithium is expected to rise as lithium reserves are scare andgeographically sparse. This is of particular concern to Indian battery manufacturers, consideringChina is the closest source of lithium, having the largest proven lithium reserves in the world.Also, the battery component has the highest weightage in the overall cost structure of an EV.3.2 Traditional Component SuppliersThe auto component industry in India is expected to grow at a rate of 13-15%, having thepotential to become one of the top five auto component economies by 2025 [45]. Over the lastdecade there has been a marked improvement in the quality of auto components manufactured inIndia. Most of the standard components required by the Indian automotive sector aredomestically manufactured with an import dependance estimate of about 13.5% of domesticdemand. Due to growing economies of scale of the Indian auto component industry,manufacturers of EV are likely to depend on traditional component manufacturers for allstandardized parts that go into an EV and that are common to ICE vehicles such as tyres, seats,doors, windows etc. India exports a wide range of auto components and chassis. The autocomponent industrys exports are expected to grow by about 24% during 2010-2015 [46], and canbe further bolstered by investing in technology collaborations and joint R&D. Traditionalcomponent manufacturers can diversify their product offerings by tying up with makers of EVs,leveraging their technological expertise, to develop specialized parts for hybrid and EV, both fordomestic and export markets. India has a relatively strong auto component base for electrical andelectronic components that can be leveraged to tap into the emerging EV sector.3.3 Battery Manufacturers & SuppliersA key concern in the EV sector has been the advancement of battery technology, which hasbenefitted from recent breakthroughs in lithium-Ion batteries due to their application in computersand mobile devices. There has been substantial growth in the number of lithium-ion patents inChina, USA, Japan and Western Europe [40] and batteries available today can store energy toenable driving ranges that exceed 100 kms. Battery manufacturers have been working withOEMs to develop batteries for EVs and many of them have been increasing production capacityto achieve the required volume to drive down prices. The growth in the battery market for EVs willspur investments in R&D making batteries more reliable and affordable while providing longerdriving ranges. It is likely that existing battery suppliers for mobile devices will dominate the Electric Vehicles in India: Challenges and Opportunities 25
  31. 31. market, though new players are quickly emerging. Battery manufacturers and suppliers will also have to consider pro-environmental means to dispose depleted batteries as they comprise hazardous chemicals. While some battery suppliers are forging new partnerships with automobile manufacturers to reduce risks (e.g. Toyota and Panasonic), others continue to traditionally buy batteries from Tier 1 suppliers (e.g. Johnson Control and Saft) 3.4 Original Equipment Manufacturers (OEMs) Looking ahead, OEMs face daunting challenges towards the allocation of investments in new technologies as a result of the current financial slowdown, and yet they must adapt their businesses to capitalize on emerging opportunities in new markets, specifically the EV sector. The automobile industry seems to be preparing for a major shift towards powertrain technology. There are a range of different types of EVs (see Pathway to ZEVs) and OEMs will have to assess options based on their ability to leverage different actors across the value chain. Since established OEMs have plants that are built around mass production, they offer very few cost advantages for new powertrain configurations. OEMs could develop a competitive advantage through partnerships with technology companies (that have know-how on electric drive-trains), battery manufactures and traditional component suppliers to reduce risks and leapfrog the development of EVs. In turn, they could also partner with other OEMs to share and spread associated risk, by standardizing EV components. Manufacturers in emerging economies, India and China in particular, are exposed to much wider business opportunities from the shift towards EVs. 3.5 Utilities “Indian cities and towns are plagued by frequent outages and the basic requirement for electric cars is electricity…” [47]. A growth in demand for EVs will have a sizable impact on electricity generators and suppliers. This additional demand for electricity will have to be addressed through increased generating capacity and essentially through better grid management. Driven by reforms beginning with The Electricity Act, 2003, followed by de-licensing, the power generation sector has transformed from being a slow moving industry to a space where there lie vast growth opportunities. By repairing or upgrading distribution equipment, efforts are being made to reduce transmission and distribution losses, which currently stands at 28%. Covered in a later section, we will explore the possibility of introducing smart grids in major metropolitan cities, from a technical perspective. Indias power sector has increased generation capacity by record numbers this year, and it is expected to double from the current 177 gigawatts (2011) to 300 gigawatts by 2015 [48]. India also has plans to generate 15% of the electricity mix through renewable sources such as solar, wind, biomass, geothermal and hydro energy [49]. Solar energy is expected to grow to the tune of 2 GW by 2013, gradually scaling up to 20 GW by 2020 [50], and wind energy generation capacity which has experienced phenomenal growth, stands at 13 GW (Dec, 2010) and is expected to grow to about 50 GW by 2020 [49]. According to a number of studies, electricity demand from EVs can increase the penetration of wind as a baseload resource [51], since the generating profile of wind energy matches the load profile of a night-time charging regime. Increasing the renewable energy mix would reduce the emission factor of the total electricity26 Electric Vehicles in India: Challenges and Opportunities
  32. 32. generation mix, rendering EVs cleaner and greener. Since EVs are only as clean as the electricityused to charge them, adding renewable energy to the mix would only boost their greencredentials. EV manufacturers must liaise with utility providers in order to develop innovativesolutions for charging of public and private, including option of using renewable energy sources.3.6 The Electric Vehicle EcosystemExhibit 16: The EV Ecosystem Insurance Finance Tech R&D Smart Grid Firming Renewables Grid Storage Climate Change Data Flow Policy Renewable Power Building/Vehicle Interaction (V2B) Information Li-ion Battery V2G Money Consumers Vehicle Electrification Electricity Smart Charging Key system players Major trendsSource: Mahindra - Reva Electric Vehicles in India: Challenges and Opportunities 27
  33. 33. Exhibit 17: EV risks, challenges & solutions28 Electric Vehicles in India: Challenges and Opportunities
  34. 34. Electric Vehicles in India: Challenges and Opportunities 29
  35. 35. EV Safety safety chassis Source: YES BANK Analysis30 Electric Vehicles in India: Challenges and Opportunities
  36. 36. Policies Promoting Electric Vehicles in India