The electric vehicle (EV) industry and EV charging infrastructure segment have been facing headwinds owing to the outbreak of Covid-19. Shifts in consumer preferences, supply chain disruptions and a slowdown in public spending on charging infrastructure are some of the challenges the industry is grappling with. Industry experts comment on the challenges faced due to Covid, the policy interventions required and the outlook for the industry…
Is Covid-19 an opportunity or a setback for the EV industry and EV charging infrastructure providers?
Robert H.K. Demann
While the global electric vehicle (EV) industry continues to expand rapidly, the Indian EV market is yet to find acceptance and adoption as India is a relatively new entrant in this space. The government is targeting to achieve high EV penetration by 2030 as per a NITI Aayog report. With FAME II (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles) and state policies, charging infrastructure had gained a decent momentum pre-Covid. Consequently, domestic original equipment manufacturers (OEMs) had just started to launch EV models. However, over the past few months (even pre-Covid), the automotive industry has been facing a rough patch due to higher acquisition costs and higher investments on account of BS-VI regulations and weaker demand. In fact, the automotive industry faced one of its worst business conditions in January-March 2020, with reduced production and sales. Automotive manufacturing is now slowly recovering and with this, the EV industry has also started to recover.
The emerging situation, post-Covid, is a mixed bag for the EV industry and will continue to differ across various vehicle segments. While the passenger e-vehicle segment has been experiencing a slack in demand, the two- and three-wheeler, and light commercial EV segments have seen an uptick. The major drivers for this growth are the growth in e-commerce and last-mile delivery businesses, the awareness regarding the benefits of the total cost of ownership, and relatively lower upfront costs and power requirements.
The growth of EVs also gives an opportunity to start-ups and new players to fill in the gap and leap ahead of traditional OEMs. Some of the two- and three-wheeler start-ups have turned this crisis into an opportunity. Siemens India is in this business for the long haul. We are working with auto OEMs and stakeholders to build sustainable and energy efficient charging infrastructure. On the industrial side, we are leveraging our Industry 4.0 technology to build energy- and cost-efficient manufacturing set-ups across the EV value chain.
In a matter of months, the world has been transformed. Hundreds of thousands of people have fallen ill, thousands have died, and economic activities have almost come to a halt. Amidst this, one positive development that humanity has witnessed is the reduction in CO2 emissions in the atmosphere. The pollution in New York has reduced by nearly 50 per cent. In China, emissions fell nearly 25 per cent during the start of the year. In Europe, satellite images of Italy, Spain and the UK show a similar story. Back home in India we can see blue skies, clear water in the Yamuna river and better air quality. Researchers such as Glen Peters of the Center for International Climate and Environment Research in Oslo have noted that the year 2020 may see a drop of 0.3 per cent in global carbon emissions. What is more important is how quickly it will rebound.
This pandemic has forced us to bring in changes in our behaviour and our life. We are spending time with our family. We are driving/travelling less. A 2018 study at the Zurich University of Applied Science found that when people were unable to drive and were given free e-bike access instead, they drove much less when they eventually got their car back. A similar study in 2002 at Kyoto University found that when a motorway closed, it forced drivers to use public transport, and the same thing happened when the road reopened – people who had formerly been committed drivers travelled by public transport more frequently. So, times of change can lead to the introduction of lasting habits. During the current pandemic outbreak, habits like driving less that are coincidentally good for the climate might continue. Incidentally, the transport sector contributes to around one-fourth of global emissions, whereas the power sector accounts for another one-third of the emissions.
As per research by Wood Mackenzie, global EV sales are expected to drop 43 per cent in 2020, from 2.2 million in 2019 to 1.3 million EVs in 2020, due to the novel coronavirus pandemic and its financial impacts. However, this is likely to be a short-term affair and a strong rebound is possible in 2021 and beyond. Why?
First, the governments of various countries will employ stimulus measures to offset the impact of the virus and bring the economy back on track. Second, automakers have invested billions of dollars in rolling out new models of EVs. It is not expected that Volvo would roll back its strategy of having only EVs from 2019 onwards, Merc is not expected to go back and start investing in research and development (R&D) of new internal combustion engine (ICE) vehicles, BYD is not going to stop producing EVs. Testimony to this is the recent statement of Dr Pawan Goenka from Mahindra, who reiterated that they have not cancelled any EV programme because of the current crisis. On the demand side, I believe that this pandemic will lead to renewed interest in individual ownership of vehicles. At least for some time people would like to avoid travelling with unknown people in public transport. Having experienced a salubrious environment, the desire for EVs would grow. This is good for OEMs.
What would be needed is robust charging infrastructure. This would require government support in terms of making space and electricity infrastructure accessible to a charge point operator (CPO). As a CPO, we are providing our services to EVs on the road even during Covid-19. EVs are currently operating for emergency services and they need to be charged. Our smart charging network helps these EVs to keep running. Renewables as a source of energy can also be explored. This will be complementary to EV adoption. Further, EV batteries would provide flexible demand and storage, and help in the large-scale deployment of renewables.
To conclude, I strongly believe EVs would rebound next year after facing an impediment in the year 2020. We as a country should be ready to capitalise on this opportunity. We should be ready with public charging infrastructure to meet the increasing demand for EVs.
Covid-19 is impacting every aspect of our lives and business, and is likely to have a lasting impact on the automobile and mobility infrastructure industry as well.
With respect to the electrification of mobility, data from the past six months suggests that global EV sales have been more resilient than combustion vehicle sales. This is true for most large markets and is great news. However, how governments respond to the crisis in different parts of the world will influence the pace of the transition to EVs in different countries. Most countries seem to be on the right track. Incentivising EVs has been an important component of Europe’s economic recovery and is expected to speed up the transition towards EVs in the region. In China, a part of the recovery stimulus is going towards building out EV charging infrastructure. India too has seen policy movement, with Delhi and Telangana recently announcing their subnational EV policies.
While some companies will feel the pain due to shutdowns and economic contraction, leading to consolidation and possible shifts in market share, the overall transition towards electric mobility is likely to be an important theme of a global green recovery. This is also likely to present many business opportunities for companies.
Covid-19 has undoubtedly led to a setback for the electric mobility industry although in the long term, the pandemic presents a brilliant opportunity for EVs, provided the industry deals with it in a pragmatic manner. The Covid-19 pandemic has led to positive externalities for the environment. Restrictions on public mobility have led to a 15 per cent reduction in nitrogen dioxide (NO2) concentration levels around the time of the shutdown (March 15 to April 30) over the corresponding period in 2019. This has generated immense interest among the general public in the clean air proposition made by electric mobility. The readily observable benefits of reduced vehicular pollution have strengthened the case for electric mobility. This factor will go a long way in ensuring that electric mobility continues to remain relevant as economies across the world resolve to rebuild themselves in a cleaner and sustainable manner. Over the short to mid-term, the Covid-19 crisis could delay the development of advanced technologies, as OEMs and investors scale back innovation funding to concentrate on day-to-day cash management issues. There is an opportunity for utilising the reduced funding for the development of cleaner technology as it will have greater future value.
Dr Rahul Walawalkar
Covid-19 has definitely caused a major disruption not just in the industry, but in every one of us. In the immediate aftermath of Covid-19, there were supply chain constraints as well as demand variability. Battery pack manufacturers in India are currently assembling high capacity packs to target EVs and the stationary storage market. The assembly of Li-ion battery packs is a dynamic industry in India and is growing at a healthy pace.
At the India Energy Storage Alliance (IESA), we believe it is high time that the Indian industry takes up R&D and advanced cell manufacturing so that we can reduce our dependence on other countries. The recent pandemic has highlighted the importance of domestic manufacturing considering the risk of global supply chain disruptions. Energy storage and EVs are important for national energy security and we should learn from the recent events and accelerate our efforts for building domestic capabilities.
With the recent announcement of Atmanirbhar Bharat, our prime minister has made the intent of the government quite clear. NITI Aayog is planning to launch the National Programme for Advanced Chemistry Cell Manufacturing with an outlay of Rs 355 billion.
Covid-19 provides an opportunity to the EV industry as citizens are more conscious and responsible towards the environment. Further, due to the ongoing pandemic and limited availability of public transport options, there has been a drop in the usage of public transport and shared mobility. This is resulting in a surge in the demand for two-wheelers, including EVs. There has also been an increase in the demand for EV rental/subscription models.
World over, it is an opportunity for the EV industry as well as EV charging infrastructure providers. The positive impact of the reduction in human activity is visible in the reduction atmospheric pollution. This is a positive for the climate goals set by the world under the Paris Agreement. It is also an opportunity for countries, including India, to fulfil their commitments under the Paris Agreement by greening their power generation portfolio, and replacing fossil fuel-fired vehicles with EVs.
The governments are providing policy stimulus to the EV industry. In fact, the negative impact on ICE vehicles has been much greater as reflected in their dipping sales figures globally. In India, the Delhi state EV policy is a positive step in this direction. The Delhi government has notified a very forward-looking EV policy, providing demand incentives to make it a win-win situation for the entire EV ecosystem.
What have been the short-term challenges faced by the EV and EV charging infrastructure segments due to the current pandemic?
Robert H.K. Demann
In the short run, the adoption of new technology-based automotives such as EVs is likely to be limited. In DC charging, infrastructure cost sensitivity is taking precedence in investment decisions vis-à-vis the sustainable future-ready approach. Due to the lack of adequate investments in charging infrastructure, EV charging could be directly connected to the grid. In this case, the discoms need to be vigilant as these non-linear loads would have a long-lasting impact on weaker distribution grids, resulting in poor power quality in the long term.
In the very short and short term, the impact of the pandemic has been clearly on the demand side. During lockdown, vehicles of any kind were not allowed on the roads, except for emergency services. Obviously, it meant no business for EV charging, save for EVs pressed for emergency services. However, once unlocking started, the business started picking up. People have started coming back to EV charging stations. We are within striking distance of the clocking charging session recorded immediately prior to the lockdown.
Disruptions in global supply chains and economic contraction leading to delays in consumer purchase decisions may have created cash flow and liquidity challenges, especially for mobility start-ups and companies along the mobility value chain. Also, in the short term, some developing economies may not have the fiscal bandwidth to announce new incentives, or in some cases even continue existing EV incentive programmes. However, this can be an opportunity for such governments to announce non-fiscal incentives and remove any regulatory bottlenecks that hold back EV adoption.
The current crisis induced by Covid-19 has greatly impacted the automobile industry. Some of its key impacts on the e-mobility ecosystem are:
- Disrupted supply chains: EVs mostly use Li-ion batteries and materials like lithium, cobalt, nickel, manganese and graphite. Moreover, several power electronics components used in EV chargers are imported from China, Taiwan and South Korea. Unfortunately, India does not have any of these materials, or the capacity to manufacture EV supply equipment. There is an opportunity to develop a local component manufacturing industry that can boost electric mobility in the country. This EV component manufacturing could be prioritised in the states where EV policies are released.
- Localised lockdowns: Localised and intermittent lockdowns have proved to be a barrier for the deployment of EV charging infrastructure at several locations. The transport of labour and material to sites remains restricted in containment zones. Moreover, EVCI deployment requires close coordination with municipal and discom officials, for whom tackling Covid-19 remains a priority.
- Setback for shared mobility: As the pandemic continues, physical distancing will have a significant impact on mobility behaviour and preferences. Many people will switch to a transport mode that reduces the risk of infection, but the shifts will largely depend on their pre-Covid-19 habits. People who own a private vehicle will use it increasingly, while those who previously relied on public transport might switch to another mode, such as biking or walking.
- Funds crunch with the government: With the government prioritising expenditure on healthcare, food security and emergency financial aid to the distressed sections of society, subsidising electric transport could take a back seat.
Dr Rahul Walawalkar
The sector, which had gained some momentum in the past, has now taken a back seat. Most affected are the start-ups conceptualised over the past two years that are now in a cash fix and many have shut shop or moved to other businesses. Shared transport, which was seen as a major enabler for EV adoption, will take a hit due to social distancing norms and reduced transportation needs. Also, there has been a supply-demand disruption due to Covid, thus impacting EV manufacturing.
At the same time, we are seeing an increased demand for EVs, particularly two-wheelers, for personal transportation. Also, most of the global OEMs have started using this disruption to accelerate their plans for EVs. We hope that Indian OEMs will also realise that this disruption provides perhaps the biggest opportunity for them to transition. We have recently signed an MoU with Energy Efficiency Services Limited to help accelerate the adoption of xEVs in the private sector in India. We are confident that post-Covid, the industry will quickly overcome the challenges.
Covid-19 has certainly disrupted the local supply chains and manufacturing. Other short-term challenges include:
- A reduction in the use of shared EV fleet due to an overall reduction in the usage of shared mobility
- Delays in the launch of EVs
- Delays in the implementation of public EV charging infrastructure
- Corporate/Fleet operators are deferring investment plans due to reduced demand/less usage
What are the key policy interventions required to strengthen the recovery of the segment?
Robert H.K. Demann
A major impetus is required to strengthen the local EV manufacturing capabilities, including battery manufacturing. This would contribute towards the long-term vision of Atmanirbhar Bharat. Besides, policies such as FAME II and the National Electric Mobility Mission will boost the growth of this sector. Other measures such as goods and services (GST) rate reduction for EVs (slashed to 5 per cent from the pre-existing rate of 12 per cent) and an additional Rs 0.15 million deduction in income tax for interest paid on loans for the purchase of EVs will also drive sector growth.
For these policies to materialise, a clear implementation roadmap is required, especially for the build-up of high-power, modular, OEM-independent, future-ready charging infrastructure across long distance highways. This would provide an impetus for the adoption of EVs, especially commercial vehicles. This in turn will help achieve the larger goal of reducing the CO2 footprint and moving towards green mobility. In addition to national policies, state/UT governments, such as the Delhi government, have come up with policies focused on EV buyers. This is a good step and will motivate many more states to follow suit to accelerate the adoption of small-size EVs.
Keeping all these challenges and uncertainties in mind, industry bodies such as FICCI have requested the extension of FAME II till 2025 and sought incentives in the short term, to bring the EV revolution back on track.
The government has taken various policy measures like the introduction of demand-side incentives through FAME II, reduction of GST on EVs to 5 per cent, and exemption in income tax for personal vehicles. Various states have come out with their own policies, supporting manufacturing of EVs and its elements and providing additional demand-side incentives. Treating EV charging as a service and a delicensed activity with separate tariffs can help create a strong EV charging network. However, a few concerns are yet to be addressed.
While the EV charging network is a must for the large-scale adoption of EVs, it is important that these networks get utilised adequately in the short to medium term as well. This can be achieved by adopting a push-and-pull strategy through policy intervention. Like the European Union – on which we have modelled our vehicular emission control strategy – and on the lines of the solar renewable purchase obligations aimed at driving solar adoption, India can consider mandating a certain percentage of vehicles to be manufactured as zero-emission vehicles. At the same time, it can mandate government departments and taxi aggregators to electrify their fleet. Further, policy intervention is much needed to create a level playing field for private and public entities operating in the EV charging space. Access to location and adequate electricity are two main impediments to EV charging. Currently, private sector players are disadvantaged as there are no clear policies/guidelines on the allocation of the available parking space to private players. Further, GST on the EV charging service can be brought to 5 per cent, that is, at par with EV charging equipment, to reduce the cost to the consumer.
Policy interventions will vary by geography. In the Indian context, the existing FAME II scheme for EV incentives can benefit from a re-examination. A significant part of the total budgetary allocation remains unspent. There are several bottlenecks that prevent companies from availing of incentives. This presents an opportunity for the government to rejig the scheme based on market signals. This can improve the effective utilisation of incentives and act as a stimulus for a faster transition to electrification.
Some of the priority use cases of EVs in India have been identified in WBCSD’s India Business Guide to EV Adoption, which was launched at COP-25 last year. The electrification of ride hailing can provide scale to EVs as we come out of the pandemic. However, we need to do it in a manner that is just to driver-partners on the various platforms – who in some cases have been disproportionately impacted by the crisis. WBCSD’s upcoming publication, Advancing Electrification of Ride-Hailing in India: A BluSmart Case Study, highlights the learning and insights on the electrification of ride hailing in India, which can be useful for market players as well as policymakers.
The government’s policy interventions will need to be targeted and phased out. While short- and medium-term measures would be aimed at softening the economic blow dealt by Covid-19, the long-term measures would be aimed at further strengthening India’s e-mobility ecosystem. Some of these measures are:
Short term (time horizon of six to eight months)
- Boost liquidity: Provide liquidity to the auto industry, STUs, and logistics providers, fleet aggregators, operators, and auto dealers. Make working capital available for salaries and other ongoing costs.
- Ensure safe public transport: Issue guidelines or standard operating procedures (SOPs) for safe operation of public transport services (i.e., metros and city bus services), including social distancing measures and sanitation procedures, loading and unloading goods, and promoting digital trade documentation to ensure ease of doing business. This will enhance public confidence in the hygienic safety of shared mobility.
Medium term (time horizon of 8-24 months)
- FAME II: The government must continue to implement the FAME II scheme and allocate demand incentives as planned to revive EV demand. The FAME II demand incentives may be extended for private four-wheeler EV users to encourage adoption.
- State-level EV incentives: As exemplified by Delhi’s state EV policy, the state governments must strive to complement FAME II demand incentives with state-level subsidies to lower the upfront cost and the total cost of ownership, along with non-fiscal incentives such as green licence plates and priority lanes.
- Electric delivery vehicles: This pandemic has made the public comfortable with the concept of ordering groceries and other essentials online. In response to this trend, the central government could issue guidelines to state governments to encourage the electrification of final-mile delivery vehicles as freight demand experiences an increase in the next one to two years. The state governments could potentially push final-mile logistics companies to continue with their EV deployment plans and create awareness about the benefits of electrification among delivery operators.
- Scrappage policy: An incentive-based policy has the potential to encourage scrapping of vehicles older than 15 years.
Long term (time horizon of two years and beyond)
- Vehicle and component R&D, design, manufacturing, and export: There is a need to leverage Make in India to significantly increase India’s share of R&D, design, manufacturing, and export of vehicles and components, especially for EVs. In addition, local, resilient manufacturing and supply chains should be promoted in the long term through tax incentives, lower land rent, and the promotion of local battery manufacturing.
- Freight corridors: Encouraging the development of several electric freight corridors to promote the electrification of the medium and heavy duty truck segment.
Dr Rahul Walawalkar
Apart from attracting investments for giga factories, the state governments and the micro, small and medium enterprise ministry need to support small-scale industries to diversify into component supply, energy storage and EV manufacturing.
The Ministry of Mines and other government bodies should invest in the exploration of raw materials in India. Also, India needs to focus on developing material processing capabilities to supply appropriate quality material to the advanced storage manufacturing ecosystem. The government should create a separate body to promote the export of advanced batteries and ESS solutions. New skill development and reskilling in the advanced technology sector should also be a priority for the government.
There are several policy interventions, many of which may also be under active consideration of the authorities. These include:
- Capital rebates linked with zero emission benefits to EVs
- Income tax rebates to individual EV user purchases
- Regulatory approvals for discoms to install EV charging infrastructure under the capex and opex modes
- Indigenisation (Make in India), that is, setting up facilities in the country to manufacture as many components as possible
- Attractive financing schemes for the purchase of EVs
- EV lending should come under the ambit of priority sector lending
- Long-tenor financing options should be made available for charging infrastructure.