Unlocking new opportunities in the E-Mobility Market of India

Unlocking new opportunities in the E-Mobility Market of India
The automobile sector is one of the most important foundations of the Indian economy, accounting for more than 7% of the country's GDP. But with a population of almost 1.4 billion and growing, India is expected to have 300 million additional cars on the road by 2040, the largest increase in the global automobile market, which is expected to result in an increase in the oil consumption of four million barrels per day. India surpassed Japan to become the third-largest global market of automobiles in the fiscal year 2022. The electrification of passenger transport has emerged as a key component of global efforts to decarbonize the industry. With the transportation sector accounting for 24% of global greenhouse gas emissions and more than 40% of those emissions originating from passenger road vehicles, electrification of passenger transport is now an important priority. Indicatively, at the 26th Conference of the Parties (COP26) summit held in Glasgow in 2021, 38 national governments, 47 city and regional governments, 11 automakers, 28 fleet owners, and several investors and financial institutions vowed to ensure that by 2035, all new car and van sales in the key economies would be zero-emission vehicles. In response, the Indian government has committed that by 2030, 30% of the new vehicle sales in India would be electric. This effort to make the adoption of electric vehicles (EVs) a strategic aim fits with India's target of reducing carbon intensity per unit of gross domestic product (GDP) by 45% by 2030. It can also serve as a green industrial policy to aid post-pandemic economic recovery, cut oil imports, increase energy security, reduce air pollution, and combat climate change. The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by five times to US$ 1,318 billion.

E-Mobility Market in India
The electric mobility sector has also grown significantly over the previous five years, and India is on track to become one of the world's major EV markets by 2030. The market is anticipated to expand at an average annual rate of 49% between 2021 and 2030, propelled by favourable government efforts and policies, rising air quality concerns, and rising fuel prices. India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years.

Between 2019 and 2020, the industry witnessed a 15% decline in global car sales. However, sales of EVs experienced an unparalleled surge, rising by 43% in the same timeframe. The increase in EV sales prompted the expansion of other parts of the e-mobility ecosystem, such as the charging infrastructure segment, which increased by 40% from 2020 to 2021, to 1.8 million publicly available charging infrastructure points. Between 2020 and 2021, global battery demand more than doubled to 340 GW. Between 2022 and 2030, the e-mobility sector is expected to increase at a 22.5% annual rate, reaching US$ 1.1 trillion by 2030. Given the increasingly volatile geopolitical environment, firms are striving to diversify their EV supply chains, and India is increasingly seen as a leader in this area.

Since 2018, EV adoption in India has expanded at an annualised rate of 55%. Adoption has been particularly strong in the electric 2-wheeler (E2W) and electric 3-wheeler (E3W) divisions. India accomplished a significant milestone, with the sale of 1 million EVs in 2022. New innovative business models and technologies emerge in this space, and the Indian start-up ecosystem is poised to lead the way for the mobility market revolution.

Key Stakeholders

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Segments

• Two-Wheeler (E2W)

In India, sales of two-wheelers make up around 80% of total domestic vehicle sales. Given their affordability and ease of usage, scooters and motorcycles are the most favoured mode of transportation for majority of the population in India. Electric 2-wheelers are seeing huge growth in sales, with figures reaching 110 thousand in the first quarter of 2022, and a forecast of 535 thousand for the year.

• Three-Wheeler (E3W)

Low-speed vehicles with a top speed of 25 km/hr, such as e-rickshaws and e-karts, account for the majority of sales of e3Ws. Passenger movers account for 90% of sales, while cargo movers account for 10%. The penetration of e3W automobiles has significantly increased, reaching 5% in Q1 of 2022.

• Passenger vehicles/ Four-Wheeler (E4W)

In 2021, 14,218 EVs were registered in the passenger car class, a 200% increase from 4,642 in 2020. This market will expand because of rising fuel costs and the demand for personal mobility. As of now, penetration is at 1% but by 2027 it is expected to be at 4%.

• Electric Buses (E-Buses)

Many electric buses are acquired by state governments or State Road Transportation Corporations (SRTCs). Electric bus demand has been incredibly low. But over the next few years, the market is anticipated to pick up steam and achieve a 16% penetration rate by 2027. In order to electrify public transportation in India, the government is pushing to deploy up to 50,000 buses over the course of the next four to five years.

The below graph represents the total number of electric vehicles sold segment-wise between 2018-19 to 2023-24 (till April 12, 2023). A spurring growth can be witnessed in E2W and E3W from the year 2020-21. E2Ws and E3Ws made up 62% and 34%, respectively, of all EV sales between April 2022 and December 2022, while E4Ws made up less than 4% of sales. Moreover, the E-buses segment is also picking up, as it almost tripled between 2020-21 to 2021-22.

​​​​​Source: Society of Manufacturers of Electric Vehicles (SMEV)
Note: 2023-24 is till 12th April 2023

Opportunities

• Companies all over the world are currently looking for low-cost, regulated-friendly alternative manufacturing hubs. Companies such as Brose, a European car component maker that supplies to Honda, Ford, and Nissan, have increased the size of their production operation in Pune, India. Other firms, such as Toyota-Tsusho and Sumida Corporation, are considering shifting their manufacturing base from China to India due to the availability of affordable labour and a favourable policy climate that allows for 100% foreign direct investment (FDI).
   
• India is a new player in the battery production industry, but it has tremendous growth potential. It is anticipated that the global market for lithium-ion batteries (LIBs) will increase from roughly US$ 41 billion in 2021 to at least US$ 116 billion in 2030. The battery accounts for roughly 40% of an EV's worth. The battery cell is the component with the highest value. In a scenario of rapid expansion, India projects a battery industry worth roughly US$ 15 billion annually by the end of the decade, of which US$ 12 billion would come from the production of battery cells and US$ 3 billion from the assembly and integration of battery packs. Even in the most optimistic scenario, the Indian domestic manufacturing market would be worth US$ 6 billion per year.

Investment Landscape
Demonstrating the sector's investment potential, EV start-ups in India raised approximately US$ 1.6 billion in 2022, a 117% increase from 2021. Over the last two decades, the Indian automobile business has attracted a total of US$ 25 billion in FDI. The EV industry received record-breaking funding in FY23 of US$ 3.6 billion. Significant investment has also come from a diverse group of investors, including PE and VC funds, sector-focused funds, and foreign strategic assets.

Source: Invest India
Note: MaaS- Mobility as a Service; OEMs- Original equipment manufacturers

Government Initiatives

​​​Source: Invest India

• FAME-II Scheme

The Government of India introduced the National Electric Mobility Mission Plan (NEMMP) 2020 in 2013 to offer a vision and roadmap for EV adoption and manufacture in the nation. The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) initiative was introduced as part of this strategy in 2015. The programme has since been extended to 2024 with a budget of US$ 1.3 billion. The budget includes funds for the construction of charging stations as well as up-front incentives to lower the cost of purchasing vehicles.

• Production Linked Incentives (PLIs) for Advance Chemistry Cells (ACC)

The government has invested around US$ 2.5 billion to this incentive scheme, which seeks to establish local manufacturing capacity of 50 GWh of ACC and 5 GWh of niche ACC capacity (planned). The programme intends to improve exports and generate economies of scale, helping big domestic and international manufacturers develop a competitive ACC battery production in India. To receive incentives under the programme, the government has agreements in place with three bidders, namely Reliance New Energy Solar, Ola Electric, and Rajesh Exports.

• Production Linked Incentives (PLIs) for Automobiles and Auto Components

The programme provides financial incentives to boost local manufacturing and attract investors into the car manufacturing industry's value chain. This plan intends to lower costs and provide a reliable supply chain for goods made with cutting-edge automotive technology. The approved candidates, in addition to commercial entities from India, also came from Japan, Germany, the United States, the United Kingdom, and the Republic of Korea, Ireland,

France, Belgium, the Netherlands, and Italy

Union Budget 2023

The Ministry of Environment, Forest, and Climate Change published the Battery trash Management Rules in 2022 to ensure that battery waste is handled in an environmentally responsible manner.

 The regulations stimulate the establishment of new firms and entrepreneurship in the collection, recycling, and repair of spent batteries. By demanding a minimum degree of material recovery from used batteries in the recommendations, new technologies, investments, and business opportunities will be brought to the recycling and refurbishment sector.

• Others

• Union Budget 2023
  • Basic customs duty exemption on the importation of machinery used in the manufacture of lithium-ion batteries used in EVs, as well as vehicle parts and subsystems.
  • Customs duty on lithium-ion batteries is being reduced from 21% to 13%.
  • Concessional basic customs taxes are being extended for electric vehicles and hybrid batteries.
  • Additional funding has been allocated to support the recycling of old vehicles.
  • The emphasis is on promoting the production of green hydrogen and biogas.

• Battery Waste Management Rules

The Ministry of Environment, Forest, and Climate Change published the Battery trash Management Rules in 2022 to ensure that battery waste is handled in an environmentally responsible manner.

 The regulations stimulate the establishment of new firms and entrepreneurship in the collection, recycling, and repair of spent batteries. By demanding a minimum degree of material recovery from used batteries in the recommendations, new technologies, investments, and business opportunities will be brought to the recycling and refurbishment sector.

• Battery Swapping Policy (Draft)

In order to improve the efficient and effective use of resources (public funds, land, and raw materials for advanced cell batteries) for the provision of customer-centric services, NITI Aayog designed the draft of battery swapping policy. EVs with swappable batteries are eligible for the same incentives as electric vehicles with fixed batteries installed from the factory. According to the proposed legislation, the size of the incentive would be determined by the kWh rating of the battery and compatible EV.

Road Ahead
India is ideally positioned to become a global leader and centre for EV investment due to its vast market size for EVs as well as its position as a market leader in the overall automobile sector. The Indian EV business is still in its nascent stages, and every component in the value chain offers a tremendous opportunity to investors. India's encouraging policy is geared at boosting local production of EVs and EV components, which will lower costs and, as a result, encourage EV adoption. To meet India's expanding EV demand, significant investment would be required to create charging infrastructure, including battery-swapping networks. Investment in R&D and localization of battery manufacture will be critical, as the battery is the most expensive component of an EV. In order to enhance India's local battery manufacturing capacity, the government has created incentives such as PLI programmes and decreased customs taxes. The production of other EV parts is also being encouraged in order to boost localization and thus lower the initial cost of the vehicles.