Why Toyota & Honda have taken the hybrid route in India

Globally, Honda and Toyota have invested a lot in hybrids, and till the time that investment pays off, they will promote this technology in countries where it is unpopular and can be monetised.

Why Toyota & Honda have taken the hybrid route in India

Toyota Kirloskar Motor (TKM) and Honda Cars India argue that hybrid electric vehicles (HEVs) are the right ‘vehicle’ for India till the time a nationwide charging infrastructure is set up for battery electric vehicles (BEVs).

Earlier this week, TKM launched a digital campaign ‘Hum Hai Hybrid’ to promote HEVs — it sells two luxury HEV models (the Rs 43-lakh Camry and the Rs 91-lakh Vellfire) — and in early May, Honda will launch the City e:HEV. Developed on the Rs 11.3-15 lakh City, the City e:HEV will be India’s first mass-market hybrid car.

Lexus, Toyota’s luxury car arm, sells as many as six HEVs in India (priced from Rs 59 lakh to Rs 2.2 crore).

BEVs versus HEVs

While BEVs have a battery that needs to be charged from an external source, HEVs use two sources of power to drive the vehicle — internal combustion engine (ICE, usually a petrol) and electric motor.

Even the best BEVs available in India right now have a range of 300-400 km, and if there isn’t ample public charging infrastructure support, users of BEVs can face range anxiety (worry that the battery will run out of power and they would be stranded on the road).

Honda and Toyota claim HEVs don’t have any such issues. “On short distances, HEVs can be operated only as BEVs, and longer journeys can be enabled using ICE plus electric,” Vikram Gulati, country head & senior vice-president, TKM, told FE.

Gulati said that a study by the iCAT (International Centre for Automotive Technology), a government testing agency, had earlier found that HEVs can run 40% of the distance and 60% of the time as an electric vehicle with the ICE engine shut off, and this makes HEVs 40-45% more fuel-efficient than ICE vehicles.

This practicality of HEVs is what Toyota and Honda want policymakers to realise so that HEVs can be treated in the middle ground as far as taxation is concerned.

HEVs, BEVs and GST

Currently, the GST levied on BEVs is 5% across the board. For ICE vehicles, the effective tax rate (including compensation cess) is 28% for small vehicles (shorter than 4 metre in length) and 43-45% for bigger ones, and the same is for HEVs. “Even though HEVs are a mix of BEVs and ICE vehicles — and can act as the bridge towards electrification of mobility — these don’t get any tax advantage,” Gulati said.

Kunal Behl, vice-president, marketing & sales, Honda Cars India, said that for HEVs to get popular, these need to be made more affordable. “Two things can be done here. One, from a taxation point of view, HEVs should be treated in between BEVs and ICE. Two, OEMs can take steps to bring down the cost of HEVs by localising parts,” he said. “The City e:HEV, for example, is a made-in-India car, and despite high GST we will be able to price it competitively.”

Gulati said that the ideal GST structure for HEVs should be 11-13% lower effective tax than ICE vehicles. “As per our calculations, anything between 11% and 13% differential (as compared to tax on ICE vehicles) creates parity in terms of both taxation and the associated benefits HEVs can bring.”

According to auto analysts FE talked to, these benefits include lower carbon emissions vis-à-vis ICE vehicles and lower fuel import bill of the country (because HEVs are more fuel-efficient). “The government can give proportionate support to all new-age automotive technologies, ie have a technology-agnostic approach to mobility, instead of just focusing on BEVs,” an analyst who didn’t wish to be named said.

Coal is powering the battery

A reason India should support HEVs in the short term is the current energy mix. According to the India Energy Outlook 2021 analysis by the IEA (International Energy Agency), 70% of electricity generation in India happens by burning coal. The report noted that even though solar power is set for explosive growth, it will take about two decades for solar to match coal’s share in the Indian power generation mix, by which time the share of both would be a little over 30% each.

According to the 2021 Nomura report, Holistic Assessment of Alternate Powertrains for Passenger Vehicles in India, HEVs have lowest lifetime well-to-wheel carbon dioxide emissions (around 30% lesser emissions) compared with BEVs, whose batteries get charged predominantly by burning coal (in the current Indian energy mix scenario).

The 2030 plan

In October 2021, Union minister Nitin Gadkari had said the government aims to have BEV sales accounting for 30% of private cars.

Earlier this month, Anish Shah, MD & CEO at Mahindra Group, said that the adoption of BEVs in India has been faster than expected and about 50% of the Indian PV market could turn electric by the end of this decade. But that also means the other half, or 70% as per the government’s plan, would still be ICE vehicles.

Gulati said: “According to certain reports, the Indian PV market size could touch 9 million units per year by 2030, and 70% of that is 6.3 million, which is more than twice the current market of about 3 million PVs. We need technologies (beyond pure electric) to help India reduce both fossil fuel imports and carbon emissions. Ethanol, CNG, HEVs…all need to be considered.”

Strong hybrid versus mild hybrid

According to the FY22 retail PV sales data shared by the Federation of Automobile Dealers Associations (Fada), as many as 115,032 hybrid cars were sold in India, which is a decent 4.2% of the total sales of 2,726,047 PVs, and many times more than the 17,802 BEVs sold. What this data doesn’t tell you, however, is that almost all of these are mild hybrid cars, not strong hybrid. In mild hybrid, there is no electric motor that directly powers the wheels but some technologies such as automatic engine start-stop that help increase fuel efficiency. Carmakers such as Maruti Suzuki and MG Motor sell mild hybrid cars.

As far as strong hybrids are concerned, as per the Society of Indian Automobile Manufacturers’ FY22 wholesales data, only 831 units of the Camry were sold, and a handful of the Vellfire.

The Yen is in the hybrid

Globally, Honda and Toyota have invested a lot in hybrids, and till the time that investment pays off, they will promote this technology in countries where it is unpopular and can be monetised; the world’s first strong hybrid car was Toyota’s Prius launched in 1997, and since then it has sold over 18 million hybrid cars.

“They already have the technology (hybrid) and will maximise the return on investment,” Som Kapoor, partner, automotive sector, EY India, said. “This will also help them buy time for the eventual transition to BEVs.”

Mohit Mittal, partner, technology & internet, Praxis Global Alliance, said these carmakers know where they have placed their bets, and would need to recover investments in hybrid before foraying into new technology. “Moreover, hybrid cars share many parts with ICE vehicles, so focusing on them also doesn’t hugely disrupt the existing supply chain as well as it won’t make some suppliers go out of business,” he said.

A reason for caution could be that a singular focus on hybrid cars may make the Japanese lag behind in the BEV race, which is where mobility seems to be shifting towards. “However, the Japanese are known for their technical prowess, and with penetration of BEV still small at a global level, the current hybrid focus gives them the time to catch up in all-electric mobility,” Mittal said.

Globally, while Honda has said it will go all-electric by 2040, Toyota said it will launch 30 electric cars by 2030.

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First published on: 25-04-2022 at 11:56 IST