Global electrification drive: How will it impact Indian automakers?

While in India full electrification will not happen any time soon, we need to start taking steps towards it. For instance, the government can invest in building charging infrastructure as part of economic stimulus package

May 8, 2021 9:12 AM
Impact of electrification on India

Globally, government policies and regulations around fuel efficiency and carbon emissions, coupled with evolving technologies and speedy innovation, are changing the face of the automotive industry. Several countries, as part of their commitments to the Paris agreement on climate change, are set to phase out the production of new combustion-engine vehicles over the next two decades. Public opinion is also enabling major cities to start imposing bans or extra charges on fossil-fuel-powered vehicles to improve local air quality. According to Deloitte, electric vehicles (EVs) will account for 10% of all cars sold by 2024. However, passenger vehicles with internal combustion engines (ICE) will remain on the market for many more years to come.

For automakers, it means combining their R&D efforts to devise new architectures for EVs and hybrid vehicles and, at the same time, continuing to bring in efficiency from their ICE and transmissions to meet stringent global regulations on fuel efficiency and carbon dioxide emissions.

Indian automotive market

The government is encouraging EV adoption and aims that, by 2030, EV sales should account for 30% of all new vehicle sales.

So far, the impact of EVs on manufacturers across the automotive value chain has been limited, but as the government brings in stringent regulations and policies and more people make the switch to EVs, the shift may be more sudden than we expect right now. It is, therefore, imperative for automakers, suppliers as well as dealers to be prepared to ride this change brought in by electrification. In fact, far more focus needs to be placed on supply-side measures that include the manufacturing of critical components of EV technology.

However, given that full electrification will not happen any time soon and that ICE vehicles are going to be in the play, automakers face the dual challenge of meeting the demands for ICE, which are the profit engine for today’s business, while at the same time focusing on EVs to comply with tightening regulatory emissions and fuel-economy targets.

Addressing roadblocks

Given the strong policy push from the government, the automotive sector is hopeful of the mass market prospects of EVs, but there are challenges. The primary concerns are the lack of charging infrastructure, low supply and high battery prices, leading to high cost of manufacturing and cost-of-ownership. Several component manufacturers want the government to come up with a technology-agnostic road map for the development of sustainable mobility solutions for the future. The automotive industry needs to be prepared for making both short- and long-term investments to push for newer technologies to meet the performance expectations from EVs.

Opportunities galore

The widespread adoption of EVs is creating avenues for new companies to enter the market. Technological innovations such as connected cars and light-weighting mean that new parts and materials are in demand, not just when it comes to batteries to power the next generation of vehicles, but right across vehicle manufacturing. To turn this into reality, EV manufacturers will also require robust supply chains and engineering capabilities that fit well with their manufacturing and product development footprint.

Automotive players across the value chain need to determine appropriate business models, understand market dynamics, including regulatory and competitive trends, and develop a plan to address capability and technology gaps so that they gain a competitive advantage as industry transformation plays out over the next few decades.

Working to make EVs a reality

The good news is that the government’s FAME-2 (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme has provided policy stability, but state-level programmes will be needed to make the central government’s plan achievable. State governments, including Telangana, Andhra Pradesh and Delhi, are the first in the country to support the electrification drive and incentivising EV manufacturers and consumers in various ways. By 2024, the government aims to register 5 lakh new vehicles and will provide financial incentives on top of the central government’s existing income tax rebates for purchasing EVs.

In addition, governments need to invest in building charging infrastructure as part of their economic stimulus packages. It could be direct investments for public charging stations or subsidies for installation of private charging stations at homes and office complexes. Another important step is for automotive manufacturers to collaborate and partner with other stakeholders to create an ecosystem for enabling faster adoption of requisite technologies.

We still have a long way to go before we see a full-scale adoption of EVs. However, one thing seems clear: The future of mobility is electric.

By Manish Bhatnagar
(managing director, SKF India)

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