The document analyzes the electric car market in India, which currently makes up only 2-3% of the overall car market. It discusses factors that have contributed to the slow growth of electric cars in India such as high setup costs, expensive batteries, and limited range and speed compared to gasoline vehicles. It also examines the oligopolistic market structure of electric car manufacturers in India and strategies they can use such as product differentiation, limiting pricing, and reducing barriers to entry. For electric cars to succeed, the document suggests that factors like increasing income levels in smaller cities, rising fuel prices, and more government support will need to contribute to higher demand.

1. 2013
8/11/2013
Final Report: Electric Cars

2. Indian Automotive sector: The Indian Automobile sector has seen ups &
down’s in recent 10 years where 2009-2010 successful years was but from
recent two years industry has seen a global turndown due to economic
slowdown and rising fuel prices. Fig 1: shows domestic vehicle volume (annual)
Vs. Year-on-year growth. (Exception to the law of Demand: Keep price
constant, other factors influence the demand of the product)
Sources: SIAM
Indian automobile Market:
Sources: SIA
PERCENT

3. Market of Electric cars
Global Overview (Electric vehicles):. Fig A. shows Battery electric vehicles sales by
country in 2012.
Sources EVI, Marklines Database
Electric cars in India: Despite of few govt. initiatives and advanced features in the electric
cars, the market growth is not up to the mark.
 E-Car market is 2-3% of the car market in India
 Market for E-cars may be 4-5 over next years.
 Mahindra has already setup over 250 charging stations in various cities which
includes 95 in Delhi & 100 in Bangalore (SBI branches, Mom & me retail, M7M
dealers, Gopalan mall, etc.)

4. Oligopoly Market Structure of Electric cars in India:
Electric cars market in India is oligopoly as of now few players who has performed in the US,
European market has entered in Asia particularly in India & China. For e.g Toyota, Nissan,
BMW & Honda. In the short run electric cars may not have been able to accelerate the sales
but in the long run the market will show positive results as the consumer awareness and
preference for the low emission vehicles grows.
Few characteristics:
 Interdependence: E-car concept has very less penetration in the market. So the
existing firm has to be interdependent. For e.g. if M&M tries to raise its price then the
a high market demand of E-cars may be captured by Nissan Leaf .
 Strategy: Whether to compete with rivals, or collude with them. Whether to raise or
lower the price, or keep price constant etc .GAME THEORY is used by oligopolies
where they portrays strategic situation where each oligopolies strategies are based on
expected actions of the rivals.

5.  Pricing : Limit pricing (oligopolies sets low price & high output by selling at a price
just below the average total cost of the new entrant) or Predatory Pricing (
oligopolies set price low enough to force rivals out of the market)
Cost Plus pricing: Very uses for oligopolies where there is uncertainties.
Cost plus pricing= Fixed Cost + Variable Cost+ Profit
Oligopolies use this because precise calculation of Marginal Cost & Marginal
Revenue is difficult. For E-cars players, they should follow this pricing because in
India or in global scenario though the sale of E-cars has taken but still a shift is from
conventional cars to hybrid cars and E-cars are less preferred.
 Product Differentiation: The firm makes the product substitutable (may be advanced
features like M&M e2o have mobile app etc) & through effective advertising assures
the uniqueness of the product.
 Profit maximization: M&M wasn’t able to gain profit in India, so planned to move
European market which has been profitable market for E-cars & Reva too did a better
business in European market.. (MR,Marginal Revenue=MC,Marginal Cost).
Game Theory can be used in terms of strategies & payoffs
 Barriers to entry:
Few Electric cars manufacturer (oligopolies) maintains there position in the market
because it’s too costly or difficult for the potential rivals to enter the market. These
hurdles are called Barrier to entry.
a) High set-up Cost leading to High Average Revenue (AR) & Average Cost (AC)
b) High R&D cost
Price
Cost
ATC+25%
ATC
Output
Cost & Revenue

6. c) Economies of Scale: E-car market has enough firms according to demand. If
economies of scale exist, the average cost for existing faces fall over wide range of
output. Anew entrant has to operate at much smaller scale & average cost for them will be
much higher.
 Non-Pricing Strategy: Better option for oligopolies in E-Cars sector because price
competition can lead to price wars which can go in either successful or unsuccessful
market of E-cars. Few hurdles in acceleration of E-cars market is the Battery price
which can be reduced through R&D, charging infrastructure & service station. So
trying to improve these factors should be one of the strategies.
 Correlation between product variety and sales:
Sources: Marklines Database
In 2010 there were 16 EV models on sale and around 20 in 2012.

7. An Entry game:
Many firms in an oligopolistic market have faced an entry game. A new firm will enter only
when it makes profit when compared with existing firm. Figures taken are assumed.
Existing Firm High Output
Low Output
Enter
New Entrant Stay out
High
Low
Few reasons for slow growth of Electric car market
a) High setup cost- High Average cost (AR)
 The high set up cost for the manufacturing of electric cars is one of the factors which
contribute to high average cost of the vehicle.
 For e.g. BMW has invested 600 million euros in the production facilities , Core i3
costs $41,350 in U.S, 27 % more than the base version of the 3-series sedan and
Mahindra invested INR 100 cr for the plant setup & cost approx. 6-8 lakhs costlier
than its Substitutes.
 No incentives proposed in this year budget for the electric cars.
c) Battery:
 Lithium ion is used for E-cars.
 High battery cost (Battery costs 1.75-2 lakhs for M&M e2o & USD $12000 for
Nissan Leaf,1/3rd
of the retail price of Leaf)
 Expected life expectancy 4-5 years
 Li-Ion batteries components imported from japan, china & Taiwan.
Loss Rs 3lakh, Rs 6 lakh
Loss Rs 8lakh, Rs 8 lakh
Loss Rs Zero, Rs 12 lakh
Loss Rs Zero , Rs 10 lakh

8. b) Bandwagon effect
People use to do certain things primarily because other individual are doing regardless of
their own beliefs.
In Indian scenario, Electric cars are widely affected by bandwagon effect as in Indian market
people choose to buy according to the majority of purchases done by other customers. Except
the small range of 100-150kms & highest speed of 80-100km/hr of Electric cars which are
less when compared to conventional or hybrid cars, these Electric cars have more advanced
features. But bandwagon effect resists people from buying it
c) Some other factors are
 Price differential.
 Availability of supporting infrastructure
 Range (Distance travelled by electric cars is max of 161 km charged once.)
 Service
 Vehicle specification (Speed, Mileage, size etc.) & safety.
Utility:
Satisfaction derived by a person from consumption of a good or service. Since preference is a
budget & Price constrained, the rational consumer will not spend on an additional unit of
good unless its marginal utility is at least equal to or greater than the unit of another goods.
In an Indian scenario, utility from Electric cars is low due to its higher price, limited mileage
compact size & speed when compared to with its substitutes (Petrol & Diesel hatch back
cars) apart from these electric cars too very rich in features in comparison with substitutes.
Total Cost of Ownership (Energy Costs and their influence)
Electric cars offer substantial savings in terms of running costs when compared to vehicles
with internal combustible engines.
Assumptions (For Bangalore)
Electricity tariff is assumed at Rs. 5 per unit (1 unit = 1 kWh).
Petrol price: Rs 75 per Litre & Diesel Price: Rs 50 Per Litre

9. Mileage: Petrol Cars: 12kmpl & Diesel cars: 15Kmpl Calculation per 50 km
Units/Ltrs Cost
(INR)
Saving
(INR)
Savings per year
(INR)
Regular paid service
annually
Electric
cars
5 units 25 1500-2000
Petrol 4.17 Ltrs 313 288 1,05,120 3500-4000
Diesel 3.33Ltrs 166 141 51,465 4000-5000
Important concept for E-car industry:
Law of Demand: Under Ceteris paribus, Price of good & its demand are inversely
proportional. In 2010, when Ministry of New & Renewable (MNRE) provided 95 crore
incentives brought down the price of REVA down by INR Rs 1,00,000 (at least 30% Indian
parts) & at lower price demand increased & 600 units were sold until scheme was exhausted.
Supply curve:
 Movement along supply curve, under ceteris paribus condition, the LAW OF
SUPPLY says that there is a positive relation between price and supply. In
comparison to Reva which cost 3.2lakh and its next version e2o cost INR Rs679,793
earlier there target was 3000 units per year, but now for e2o there target is 30,000
units.
P Movement
Q
 Shifts of supply curve: Shifts of the supply happens when the underlying factor other
than its own price happens. For e.g. Delhi govt. provides the subsidy of 24%-29% of
subsidy and Chhattisgarh & Punjab govt. provides 0% VAT. This result in supply of

10. Government/Regulatory
support
Customer power
Investment in
technology (R&D)
more electric cars at same cost for M&M e2o & if there is fall in input price
(assumed).
Price s
D s’
s
s’
Q1 Q2 Quantity
Note: Rightward shift implies increase in the quantity supplied. Supplier being able to
supply more than before at the same price, or supply the same quantity as before at a lower
price
Marginal Output Rule: A firm will produce as long as Marginal Revenue is greater than
marginal cost & stop where MR=MC.
Shutdown Rule: If the price is below the Avg. variable cost, the firm should shut down
operations in short run.
For E- cars to be successful in India:
Pd
Pe

11. Conclusion:
Three factors low car penetration in small cities, rising fuel charges and rising income
(Nominal), when combined with increasing affordability of cars, will contribute to increase in
demand for Electric vehicles.
Sources: NCAER Estimate