Part II – EVs in India – Massive Potential, Not Enough Charge

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In the second and concluding part of our analysis of the Indian electric vehicle market, we take a look at Electric Scooters, the lowest hanging fruit of all in the electric vehicle tree, and how even that seems forbidden.

We also look at the bigger picture for electric vehicles in India and how they may be an answer to India’s energy security concerns. However, the lack of juice in the grid has the potential to put a spanner in the works of any EV plan for the country.

We start with electric scooters. You may read Part 1 of the analysis here

Electric Scooters – Will They, Won’t They?

The Indian two-wheeler market is one of the largest in Asia and to a great extent, epitomises the enormity of automotive sector in the country. Even as the passenger car sector has witnessed a slowdown over the past couple of years, two wheeler sales in India have continued to grow. Just to put things in perspective, over the last thirty years, Indian two-wheeler market has grown 18-fold. In 2013, the Indian two-wheeler market accounted for 14.38 million units. At a rough price of US$1000 for an average commuter motorcycle, this translates into a USD 14 billion industry, not counting the support services and supply chains.

Two-wheelers purchases in India are largely driven by the utility aspect which is perhaps why their sales are relatively less impacted by a general downturn in the industry. Two wheelers are more easily operable in the increasingly congesting Indian cities, not to forget their being more affordable thanks to fierce competition in the market. Going forward, EMMAAA forecasts the two wheeler market in India to grow at a CAGR of 11.7% over the next five years.

But do electric two-wheelers, which represent a niche product sector at the moment, stand a chance to capitalize on this growth potential?

To answer that question, we first need to look at the utility of electric two-wheelers. In India, electric two-wheelers are broadly categorized into low speed (20-25kph) and high speed (45-50kph). Low-speed electric bikes typically don’t require user registration and are priced between INR 30,000 – INR 35,000.

High-speed scooters, on the other hand, require registration and are capable of driving up to 80km in one charge, typically priced between INR 50,000 and INR 55,000 – almost comparable with that of conventional gasoline-powered scooters.

Even as it is often reasoned that the biggest factor hampering EV sales is high price, but for e-two wheelers, the case might be a little different. Available at prices more or less comparable to conventional counterparts, electric two wheelers should ideally be more attractive to buyers thanks to lower running costs. It takes only about INR 5.5 per 70 kms for an electric scooter to run. Conventional two wheelers, on the other hand, would cost about INR 80 for the same distance. That supposed strong advantage, as it appears, is not so attractive for buyers.

Limited range, meanwhile, may act as a bigger hurdle, for the utilitarian commodity. Virtually nothing in the name of public charging infrastructure also significantly restricts the prospects of e-scooters. Petrol two-wheelers provide users with the assurance of finding easy access to fuel thanks to almost ubiquitous network of filling stations. Not to forget the efficacious and economical after-sales service for most petrol-powered two-wheeler companies; in contrast, electric two wheelers purchases also get marred by servicing concerns.

Product Diversity Helps?

Electric two-wheelers have been in development and production by several small-scale regional enterprises over the last decade. Such players thrive mainly in view of low-cost component sourcing from China and Taiwan, which have been mass markets for e-bikes since late nineties. However, mainstream two-wheeler manufacturers have ventured in the sector only over the last five years or so.

Companies such as Hero, TVS and BSA all launched their e-scooters around the same time in 2008-09. TVS’ first Scooty Teenz Electric was launched back in 2008 (though TVS stopped its production within a year in view of the slow uptake). BSA too launched five models of its e-scooters in 2009, with sales targets upwards of 15,000 per month. Hero Group, which set up a dedicated electric two-wheeler unit, Hero Electric in 2007, also brought a set of low-speed electric scooters to the market.

Greater product diversity however has done little to push sales. Questions also loom large over the technology’s durability and safety, with most small-scale manufacturers sourcing key equipment such as battery and motors from China.

Countering Adversities

While it didn’t turn e-scooters into an overnight rage, the central government subsidies in FY 2011-12 did set the ball rolling for two wheeler manufacturers. According to SMEV figures, average monthly sales recorded a 20% improvement between November 2010 and March 2011. During FY2010-11, some 85,000 units of electric two-wheelers were sold in India, doubled from previous year.

The improvement in sales, unfortunately, was as short-lived as the subsidy itself. The scheme was not reinstated for FY2012-13, and EV sales began to drop by almost 70%, starting April 2012. Plummeting sales and stagnating inventory forced production cutbacks, at the same time throwing several small-scale dealerships out of business.

Two years since the expiration of subsidies, the industry is still struggling with the setback. Speaking to a few YOBykes dealerships across Delhi, Maharashtra and Karnataka, we were told that most outlets manage to sell only about 5-10 units a month. The only exception is Delhi, where a 15% subsidy from the Delhi Pollution Control Committee on purchase of EVs, has helped push sales to some extent. Delhi state government also provides other sops including no VAT or road tax on EV purchase. A few Hero Electric dealerships claim to sell upwards of 50 units per month in Delhi, while others quote a more modest figure of 10-20.

Subsidy renewal may eventually come about but dealers are cautious against over-optimism. Meanwhile, electric two-wheeler manufacturers are eyeing other revenue streams to stay afloat, for instance, corporate clients. These include educational institutions, manufacturing units, hotels and food chains, poultry farms and textile mills etc.

Ampere Vehicles, based in Coimbatore, has developed a customized e-two wheeler named Trisul for textile mill workers. The company is mainly focused on markets in southern India, operating from some 80 dealerships in Karnataka, Kerala and Tamil Nadu. Hero Electric too claims to offer specialized facilities for institutional clients, such as battery swapping arrangement and installing solar powered battery chargers.

Exports are also being explored; Hero Electric has reengineered some specific models for sale in markets such as Europe and Latin America. The former is the biggest electric two wheeler market outside Asia, with over 2 million units on road. India, in comparison, has less than 500,000 electric two-wheelers on road. China is the world’s largest manufacturer of electric two-wheelers, accounting for over 90% of the global market. While it does consume over 80% of its production, China is also a leading exporter of electric bikes to US and Europe. With decades of experience, scalable production volumes, and established brands, China’s monopoly in the export stiffens the competition for already fledgling Indian e-two wheeler makers.

Mahindra too is actively looking at exporting e2O to foreign markets. The company has already launched the vehicle in Nepal and Bhutan. Later this year, the company may launch its vehicle in European markets including the UK and Norway. The company’s upcoming electric car, the midsize Verito sedan will also hit neighboring markets like Bhutan later this year, even before the company has announced a launch date for the model in India. Meanwhile, the company is also coming up with new schemes to kickstart e2o sales back home. The company slashed e2O’s price by INR 170,000 by offering a new scheme where consumers could rent the vehicle’s battery instead of owning it. Under the scheme, a customer needs to pay ‘energy fee’ starting from INR 2,599 per month, allowing the vehicle to be used up to 50,000 km (800 km of usage per month) over 5 years. After completing 50,000km within 5 years, consumers will be required to pay INR 2.50 per km for usage of more than 800km.

Rush for e-Scooters Spelled Doom for the Industry

EMMAAA thumb-rule #243 (we just invented it!) states that a few dozen Indian entrepreneur wannabes will collectively loose a few million US dollars in investment, involving stuff transported in shipping containers from China. From two-wheelers to mobile phones, the Chinese have turned, otherwise honest Indian entrepreneurs, into fly-by-night operators, concocting up hilarious business plans, and eventually losing money.

The Indian two-wheeler industry has witnessed this phenomenon twice.
The Chinese nearly invaded the Indian two-wheeler market twice. We say nearly, because while the hype and interest in the invasion was high, screwed skewed fundamentals meant that the Munjals and Bajajs lost little sleep.

Chinese Motorcycles – The First Misadventure 

In the early 2000s, a few ‘entrepreneurs’ realized that assembling two-wheelers was a lot simpler than putting together a Mars orbiter. Anyone with a monkey wrench, a screwdriver, a couple of spanners, and a big lawn could assemble motorcycles coming out of a crate.
And China was just north of us waiting with a few million kits of Honda counterfeits.
So was born the dream of entering the lucrative Indian two-wheeler market without paying your dues. With the aforementioned bare essentials, many entrepreneurs planned their entry into the Indian motorcycle market with the kind of investment that a Hero MotoCorp pays to its Head of Sales.

Not many thought about brand, quality, product life, and customer service.

Heck, not many thought about emission norms either and many of these pipe dreams remained just that, pipe dreams, failing to even get ARAI certification. The ones that made the cut fell short of customer expectations and these foolishly planned, stupidly executed plans died a quick death. If you do not remember names like Monto Motors and Dayang Nagakawa, there is a good reason for that.

Electric Scooters – Chinese Motorcycles Redux

On paper, electric scooters tick so many boxes; A very large and rapidly growing scooter market – check; nearly zero running costs – check; daily running mileage well within battery range – check; low development costs – nearly zero (you still had to design your stickers), and easy supply – check (the Chinese, them again, were ready with thousands of battery powered scooters. Subsidies offered by the Indian government further sweetened the deal.

What could possibly go wrong?

Plenty, when you are talking about a product like two wheelers. For a product that serious, the customer expects a long life, good service back up and a brand they can trust.

All of that was missing.

As a result of low barriers to entry, many ‘entrepreneurs’, most with no passing relation to the two-wheeler industry, jumped into the market.
Which brings us to EMMAAA thumb rule #328 that states, “When gutkha barons start entering a biz where they have no business to be in, shit has hit the fan.”

The result, again a mix of Chinese influence, desire to make a quick killing, shoddy homework and questionable intentions, is that barring the more sound 2-3 manufacturers, most of the others have bit the dust. As soon as government subsidies were withdrawn, the market for e-Scooters collapsed.

Essentially, the short-lived adventures of some of these traders manufacturers has queered the pitch for even the serious players as customers will associate e-Scooters with shoddiness for a long time.

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The Bigger Picture?

Should vehicles go electric? Environmentalists and green car enthusiasts would vigorously nod in agreement. After all, electric cars emit no pollution, at least not from the tailpipe. Engineers too would recommend it: electric powertrains are much more energy efficient than conventional internal combustion engines. An electric motor is capable of converting up to 70% of electrical energy into power at wheels, including inverter and gear reduction losses. In comparison, conventional gasoline engines convert only about 17–21% of the energy from fuel, according to a 2-11 SAE paper (Miller et. al.). Hundreds of thousands of existing electric car adopters would swear by its silent engine, smoother drive and quicker acceleration. The more frugal lot would appreciate the vehicle’s low maintenance costs with fewer moving parts, not to forget the much cheaper running costs.

And if those are not reasons good enough, the bigger picture is further testimony. Electric cars don’t run on fuels derived from petroleum – an abundant but rapidly depleting fossil fuel. Petroleum has been fuelling growth in every economy in the world for centuries and despite newer oil reservoir discoveries around the world, petroleum is not a never-ending resource. The challenge of depleting oil reserves is real. According to Association of Study of Peak Oil and Gas America, out of the 42 largest oil producing countries in the world, representing roughly 98% of all oil production, 30 have either plateaued or passed their peaks. Petroleum powers almost 55% of the global transportation, while 45% is used by industrial sector and only 5% in power generation.

India imports about 80% of its oil. This largely imported crude oil accounts for almost 25% of India’s energy consumption. The increasing oil demand in India leads to increasing import bills which ultimately shoot up the India’s trade and current account deficits. It gets further complicated as the government spends USD25bn annually on subsidies on petroleum products, whose beneficiaries are the farmers, truck transport operators and of course, vehicle owners.

Mass adoption of electric cars can cut back on the use of petroleum products and reduce our dependence on foreign oil. Except that there is one little catch. The electricity that powers electric vehicles in India is largely generated using fossil fuels including coal and petroleum.

Of course, there are other sources of electricity generation such as nuclear and renewable. But as it turns out, the whole argument about the environmental impact of electric cars may not hold much relevance in India. Even as studies have ascertained that the carbon footprint of electric cars during manufacturing comes out to be higher than that of ICE cars, the overall well-to-wheel emissions of electric car will ultimately depend on the fuel mix for electricity generation. A statement from Guillaume Majeau-Bettez, co-author of a Norwegian University of Science and Technology report aptly describes the conundrum, “The electric car has great potential for improvement, but ultimately what will make it a success or failure from an environmental standpoint is how much we can clean up our electricity grid – both for the electricity you use when you drive your car, and for the electricity used for producing the car.”

For India, this clean-up of the power grid is a daunting task, with over 60% of its electricity generated from polluting sources such as coal and petroleum. Nuclear and other renewable sources including solar and wind contribute only 5% to the electricity mix, while solid waste and biomass accounts for 23%. Natural gas accounts for the remaining 8%. Like most other countries on the planet, India too envisions a sizeable expansion of its renewable energy portfolio and continues to take steps in that direction. Power generation from renewable sources in the country’s total energy mix has risen from 7.8% in FY 2007-2008 to 12.3% in FY 2012-13.

Juice in the Grid

A greater challenge for India however lies in administering secure energy supplies to meet the needs of a growing economy. Around a quarter of India’s population lacks access to electricity, according to the World Bank. India aims at expanding electricity generation capacity by 44% through an investment of USD 210 billion by March 2017, though up to USD 115 billion of that allocation is remains on paper, according to a WSJ report.

India’s power blackouts are world famous, which further restrain the scope of battery powered vehicles in the country. Indian EV manufacturers stand witness to their sales actually getting affected during peak summers and winters, when power shortage is more apparent. Ampere Electric, the two wheeler maker in southern India actually saw a marked decline in sales after electricity shortage in Tamil Nadu, its home market, caused significant rationing in household supplies. Monthly sales dropped from 600 to 60.

India aims to develop an action plan to become energy independent by 2030 through increased hydrocarbon production, exploration of resources such as shale gas and coal-bed methane, global expansion by Indian energy companies and reduced subsidies on motor fuels. Perhaps an addition to this list could be a much stronger emphasis on renewable electricity generation, accompanied by pro-active measures to promote EV adoption. Government support would be absolutely critical to a sustained activity in the niche sector over the coming years. The first step could be reinstating subsidies, emboldening the industry with newer confidence and optimism as domestic players continue their struggle to shatter stereotypes on electric cars.

 

 

 

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