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Impact of COVID-19 on the Indian e-mobility sector

By Shivali Dwivedi
Jun 29, 2020

In 2019, before the COVID-19 pandemic struck, the Indian automobile sector was reeling from the worst sales decline in almost two decades.

The sector was transitioning to the Bharat Stage–VI (from Bharat Stage–IV) emission norms, the latest standards which set the maximum permissible levels for pollutants from an automobile. Though necessary for the greater good, these emission norms imposed an additional inescapable financial burden on automobile companies in India. In the Electric Vehicle (EV) segment, India was gradually working towards its vision to make EV sales at least 30% of all automobile sales by 2030. To achieve this vision, the central government of India launched the much-awaited second phase of FAME (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) in April 2019, with an outlay of INR 10,000 crore—to be invested over a span of three years.

Despite the incentives offered by both central and state governments, as well as evolving business plans for Indian automobile companies to roll out more EV products, the sector did not prosper as expected. The burdening stock of Bharat Stage-IV products, coupled with the utilization of major resources into developing Bharat Stage-VI products, hampered the push towards EVs from original equipment manufacturers (OEMs). During this period (2019-20), only 246,000 EVs were sold. These sales were mainly dominated by two vehicle segments: ‘low-speed’ e-scooters (around 147,000 sales) and e-rickshaws (around 90,000 sales). The ‘regular’ electric two-wheelers (equivalent to 110 - 200cc conventional two-wheeler), electric four-wheelers, and electric buses are still at a primitive stage in India. Though it has been more than a year since electric four-wheelers have entered into the Indian market, consumers’ response to this segment has been lukewarm. Lack of charging infrastructure, high capital costs, no strong post-sales service ecosystem, and poor financing options as compared to the conventional vehicles have been the major issues plaguing the EV take-up in the private segment in India.

The little that was happening in the Indian electric vehicle ecosystem came to a standstill due to the pandemic.

Will the e-mobility sector slow down?

The Indian EV industry has been facing the fallout of the pandemic since it hit the country. The entire supply chain for manufacturing EVs has greatly suffered. Despite achieving localization to some extent, many Indian OEMs still rely on China for crucial raw materials for battery packs and motors. A few companies in India import e-rickshaw kits from China and assemble them locally. This heavy reliance on China raises a need to democratize the Indian EV segment and diversify the supply chain.

Another rippling effect of COVID-19 that may be seen in the short term is the reduced investment of Indian OEMs in the EV sector. The COVID-19 pandemic came at a time when the automobile industry was preparing to upgrade to the sophisticated Bharat Stage-VI technology. Automobile OEMs have already invested around INR 40,000 crore to upgrade their facilities and products in line with the Bharat Stage-VI technology. Due to the low risk-taking appetite of OEMs post-COVID-19, they may defer from making new investments in the e-mobility sector and may strive to revive existing operations and aggressively sell Bharat Stage-VI vehicles in which they have already invested. Toyota has already deferred its plan to launch EV in the Indian market.

Another change expected to affect e-mobility in India is a reduced government focus on the EV sector and an increased focus on socio-economic development. Dedicated research and development for the e-mobility sector might also slow down post COVID-19. As government revenue sources dry up, their procurement programs for e-buses and e-cars will also take a considerable hit. The same may be the case with a number of private players who were geared to procure commercial EVs in significant numbers (for services like delivery services, ride-hailing, and shuttle services) and were expected to drive the demand for EVs in almost all vehicle segments.

On the contrary, the COVID-19 pandemic affected the EV charging segment less than the e-vehicle segment. While the manufacturing of charging infrastructure was certainly affected, few electric utilities continued with their EV charging planning studies even during the lockdown period. Further, as the current investments in the EV charging infrastructure in India generally do not factor in the short-term low utilization rate of the infrastructure, it is expected that both private companies and public sector undertakings (PSUs)—such as BEE, NTPC, and HPCL—will go ahead with their planned projects and programs once manufacturing gains momentum. This would be a boost for the upcoming EV projects and products in India since the chicken-egg debate (between EVs and charging infrastructure) will be addressed to some extent with charging infrastructure being available to support increased EV penetration.

The other side of the coin

In the long term, the e-mobility sector may actually benefit from the lockdown. As human activities around the globe came to a temporary halt, major sources of pollution—such as vehicular traffic, industries, and construction—reduced to a great extent. With almost all vehicles off the roads, the air quality across many countries improved greatly.

Delhi, which is among the most polluted cities in the world, has seen striking improvements in its air quality indices. While it is difficult to stop construction activities, the adoption of EVs can reduce vehicular pollution to a great extent. The lockdown has helped showcase the adverse effects of internal combustion engine (ICE) vehicles, and EV OEMs should leverage this opportunity to promote their products.

Another expected benefit of the COVID-19 pandemic is the diversification (or even indigenization) of the EV manufacturing supply chain. The Indian government’s recent plans to acquire lithium mines in Bolivia, Argentina, and Chile show the long-term focus of transition to EVs. Further, while the Indian government has benefitted from the big fall in oil prices during the pandemic, these prices are likely to bounce back in a post COVID-19 world. This would also be a key fiscal motivator (especially for oil-importing countries like India), to focus on EVs.

Another aspect to consider is that post-lockdownand while COVID-19 is still a realitymany people who can afford will shift from public transport to private vehicles. This will create an opportunity for EV OEMs to promote the affordable, zero-polluting electric two-wheeler segment, which has experienced slower growth, to private consumers. Low maintenance costs may further boost the demand for this segment.

A few companies in India have already started leveraging the situation and re-modifying their business models to encourage the effortless adoption of EV. Hero Electric announced a lucrative online scheme during the pandemic to incentivize its models by providing a discount of INR 5000 to potential customers who booked EVs online.

Another important change caused by COVID-19 is usage pattern of the vehicles. E-rickshaws that were only used for first-and last-mile connectivity are now being used for goods delivery. This also paves a way for the e-commerce companies to achieve their internal fleet electrification targets without actually investing into the fleet. This innovative model for utilizing the e-vehicles is expected to boost the commercial EV segment in India.

With the removal of lockdown in the country, companies have also started pursuing their business-as-usual activities. Recently, ride hailing service provider Ola (under its EV venture Ola Electric) has ventured into electric 2-wheeler products Indian OEMs such as Ather, Ampere, PueEV, etc, and electric bike-rental services like Bounce have expanded into other Indian cities, apart from the metro cities. These activities will give these products greater visibility among consumers. Perceived tightening of Corporate Average Fuel Economy (CAFÉ) norms in India could further boost electrification, as seen in places such as California. The lineup of e-car products in the Indian market such as Mahindra’s e-KUV, e-XUV, TATA’s Altroz EV, Maruti Suzuki’s Wagon-R EV, Renault’s Zoe EV, Mahindra-Ford’s Aspire EV, etc. with their comparatively attracive price tags, will likely appeal to the price-sensitive Indian consumer. With many options in both two-wheeler and four-wheeler segments, and with consumer purchase perception shifting from ‘capital cost’ to ‘total cost of ownership,’ consumers might eventually prefer EVs to conventional vehicles. 

Recently, the government of India also announced a move to bar global procurement tenders in case of government purchases, up to INR 200 crore. This initiative will provide a significant boost to small-scale domestic EV manufacturers, further supporting the objective to achieve localization of the supply chains.

In conclusion, COVID-19 has had a major impact on the EV sector in India. Supply chain disruption, diminished investment, and reduced government focus have created significant short-term challenges. But the longer-term outlook for EVs is more optimistic. Factors such as the indigenization of the supply chain, shift to private transport in the near term, focus on cleaner transportation modes, increasing electrification of delivery fleets, in-place charging infra, evolving business models of Indian automobile companies, and stacked EV products ready to be launched give a sunnier outlook for the future. Despite current challenges, the long-term growth of India's e-mobility sector is full of opportunities.

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By Shivali Dwivedi

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