The way forward for investments in the EV Space | EXPLAINED

Saptaparno Ghosh Saptaparno Ghosh | 07-12 08:20

The story so far: According to media reports, the government is looking to expand the scope of its electric vehicle (EV) policy, announced in March, to include a retrospective effect. This means that the policy, that endeavours to prompt global players to localise production and invest in the domestic ecosystem, will now extend benefits to entities who have already made their investments. Earlier, entities were eligible for incentives only if they set up local facilities within three years of receiving approval. The revised policy is expected to be formally announced in August, the publications learnt from people familiar with the development.

What was the March policy’s focus on investment and localisation about?

The policy announced in March aimed to provide Indian consumers with access to the latest technology and strengthen the EV ecosystem by encouraging healthy competition among EV players by attaining higher volumes of production, economies of scale and lower cost of production. All in all, better the electric vehicle economics for Indian consumers, and in a commercially viable manner for the ecosystem. The policy also mandated that half of the value addition in the overall manufacturing be done domestically within five years. To maintain commercial viability and retain a foothold in the Indian market, the import duty on EVs as completely built units (CBUs) with a minimum cost, insurance, and freight (CIF) value of $35,000 was reduced from 70%-100% to 15%.

The policy document held India, being the third-largest automotive market in the world, could potentially “lead the global transition” from internal combustion engine (ICE) to decarbonised electric counterparts. Overall, the policy was potentially a recognition that import substitution for EVs would require a layered and longer-sustained approach. To this effect, for a commercially viable transition, it further provided mechanisms for manufacturers to address the imperative affordability paradigm of Indian consumers.

Why does the ecosystem need investment and intervention?

A Niti Aayog report in 2022 argued that purchasing a vehicle is a “major investment decision” for most Indian consumers. Thus, it was essential to ensure viable economics for owning, as well as maintaining and running the same – the total cost of ownership.

The report suggested that a sharper decline in costs would prepone the EV adoption timeline. It is essential to note that the report points to India’s structural unit cost disadvantages in the production of select cell components such as CAM NMC (8-10%) and electrolyte (2-3%). Furthermore, as per the report, certain cell components such as separators, copper foil and anode active material (AAM) require sizeable capital investment — about $200-500 million for a 20-30 GWh plant. The commission thus recommended it was imperative to offset the dynamics and “create an enabling eco-system to attract large-scale capex investment vis-à-vis other geographies”.

The other essentiality for a comprehensive ecosystem stems from the observed experience of after-sales service. Bain & Company’s India EV Report (2023), observing the two-wheeler EV segment, had pointed to after-sales service being a “big pain point” for EV customers. It also cast apprehensions about the scalability of business models that had OEMs partnering with standalone breakdown service providers (such as Ampere with ReadyAssist).

The report also held that India would require “significant investor support” to realise the $100 billion-plus EV opportunity.

“As the landscape evolves, investors need to evaluate potential assets based on five criteria, namely, sustainable competitive advantages, go-to-market and distribution capabilities, customer feedback and brand perception, talent and culture as well as manufacturing and supply chain strategy,” it held.

Does all of it address the paradigm?

The EV policy announced in March shares similar priorities with those in the U.S., China and Europe, where incentives have been endowed on a case-by-case basis to different companies for setting up capacity for EV value chain manufacturing. They entail land and infrastructure, capital subsidies, financing support, fiscal incentives and subsidised utilities. However, unrelatedly, the International Energy Agency (IEA)’s Global EV Outlook for 2024 pointed out that electric cars remain 10% to 50% more expensive than combustion engine equivalents in Europe and the U.S., depending on the country and car segment.

Notably, Europe and the U.S. meet 20% and 30% of their EV battery demands through imports, according to the report. This also forms a case for the necessity for integrated production lines.

Dinesh Abrol, a retired professor at the Institute for Studies in Industrial Development and a long-time observer of industry and trade told The Hindu, that in a broader context, foreign investments have not always been known to deliver. He held that such policies should be able to dictate the type of production that must take place. It must not be restricted to de-risking and de-leveraging, he said.

“If FDI is to reap its potential fully, the focus must be on ensuring that it is towards building a core country, such that the critical components are made here, there is the transfer of technology and local manufacturing is built here,” states Prof Abrol, adding, “If FDI does not enable one to be a core country, you will not be to progress towards an enabling capacity to establish yourself as a core player. Instead, you shall stand inserted as a peripheral player in the larger supply manufacturing chain.” According to Mr. Abrol, the way forward is to strengthen the domestic players in the creation of capabilities for critical components and make the foreign automakers use the domestic suppliers’ networks.

Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.


ALSO READ

Ola Electric responds to ARAI notice, says prices of S1 X 2 kWh scooter unchanged

Ola Electric provided an invoice dated October 6, showing a INR 5,000 discount given to customers, a...

Hyundai Motor IPO’s off to a slow start

Around 35% of the total shares in the offering are reserved for retail investors, while QIBs and NII...

Under fire, Ola Electric taps EY India to get back on track

Close to a dozen executives from EY came on-board at Ola Electric a few weeks ago on deputation for ...

Tata Motors secures 5-star BNCAP safety ratings for Nexon, Curvv, and EV models in latest crash tests

Tata Curvv.EV BNCAP testTata Motors did it again! Tata Motors has once again secured 5 star rating i...

India needs to step up manufacturing to meet Viksit Bharat goal: Volvo Grp India MD

Volvo Group India Managing Director and President, Kamal Bali. The manufacturing sector is a weak li...

Dollar pullback to help Indian rupee, weak risk appetite to weigh

Investors are now nearly certain that the U.S. Federal Reserve will deliver a 25-basis-point rate cu...