Hybrid cars—will they work for India?

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: The last few weeks has been abuzz with a slew of launches in the auto industry in India. Two themes have clearly emerged as the next wave—lower price and eco-friendliness. The answer to eco-friendliness has been pretty dominated by the hybrid vehicles displayed at the Auto Expo, New Delhi, this year by many players. Following this, of course, have been a barrage of articles on why hybrids is ‘the technology’ for India and its impact has been discussed and debated in various forums. This effort is to assess the potential economic and environmental impact of hybrids and whether this could well be just another bright spot among the numerous efforts in this direction.

In its present form, with a likely price premium of 60% over its equivalent model in India, we can safely assume that hybrids are going to be preferred mostly by car owners and not by commercial vehicle owners.

Going forward, probably the premium could reduce to about 10% if the government offers a favourable tax structure and incentives akin to the developed countries like the US. Even this is unlikely to cause a major shift in commercial vehicle sales unless fuel prices increase dramatically.

With this in perspective, we could calculate the economic impact of hybrids in the Indian context. According to recent statistics, there are close to 51 lakh petrol cars on the Indian roads, consuming around 315 crore litre of petrol a year. This translates to an amount of Rs 9,624 crore in the import bill.

If we assume an optimistic scenario of even 5% penetration (the present penetration in the US is around 3%) of hybrids in the next few years, the savings would be of the order of Rs 240 crore in the import bill per annum (assuming a 50% reduction in petrol consumption by hybrids).

We could compare this to the one time premium for purchasing hybrid cars. Assuming a base model price of Rs 10 lakh, a 60% premium would amount to an investment of Rs 6 lakh more per car. Therefore, for 2.5 lakh (5% of petrol cars on the road) cars the total price premium would add up to Rs 1,500 crore.