Impact of EV policy measures & incentives and challenges faced by EV supply chain

This article analyzes the impact of policy measures recently introduced, like incentives by the Delhi government and challenges to be resolved in the EV supply chain in India.

August 31, 2020 2:18 PM

electric cars, ev policy

In recent years the automotive industry has been witnessing an upheaval and influx of ideas in the mobility and transportation sector with the advent of digital technology. Issues of energy security, climate change, rapid urbanization, sustainability and changes in behavioral patterns have provided further impetus for the transition from traditional combustion-engine vehicles to electric vehicles and shared mobility solutions.

With countries such as Europe, China, and the US at the forefront of adopting electric vehicles, India is in a nascent stage when it comes to the production and adoption of electric vehicles due to lack of policy clarity among several other industry-specific challenges.

Policymakers have responded with measures such as the FAME policy rolled out in April 2019 with an outlay Rs 10,000 crore to incentivize EV demand and the recent Delhi government announcement waiving registration fee, road tax, and providing subsidies for new vehicles. More recently, the government (ministry of road transport and highways) has announced that the sale of electric two and three-wheelers can be allowed without batteries.

Electric Two and Three-Wheeler Segment

Given that India is home to the largest production of two and three-wheelers globally, India is likely to follow the China model in its foray into electric two-wheelers, unlike the West where electric vehicles are synonymous with passenger cars and four-wheelers.

Electric vehicles offer a potential opportunity for India to leverage its existing vehicle volumes and domestic demand to transform its manufacturing capabilities and generate jobs. Given the high battery cost (almost 40 percent of total vehicle cost), the electric two-wheelers face severe price competition from the petrol-driven scooters and bikes.

Therefore, the battery lease or exchange model seems an attractive business model. However, businesses are exploring several value propositions to customers to make it viable such as portability, ease of battery exchange, maintenance and after-sales, recycling of batteries, availability of battery replacement stations, among other factors. The 3-wheeler segment is a potential avenue to generate jobs and provide last-mile connectivity to millions of people who do not have easy access to public transit.

Supply Chain Challenges

Apart from the well-known challenges of high battery costs and the charging infrastructure, there are other issues that need to be ironed out while promoting a lease-purchase business model. For example, issues related to the liability of damaged battery and the role of insurance companies need to be carefully spelled out.

The lack of standardization of battery pack requires company-specific replacement stations, which may prove costly if they cannot be scaled up. Businesses also need to ensure the maintenance and adherence to quality and safety standards of the battery pack. This requires a coordinated effort across the EV supply chain.

The EV supply chain can be broadly broken down into three segments-firstly the Digital and Electronics value chain which includes the battery management system, vehicle control unit, dashboard, cloud services and other electronic components. This segment can benefit by leveraging existing capabilities in the building hardware and software systems in allied sectors such as electronics, mobile, IT and computing.

In battery manufacturing, though possible alternate technologies such as sodium-ion or aluminum-ion cells are being researched in India and around the world, long-term investments in research and development are required to bear fruit. The focus of the Indian manufacturers should hence be on manufacturing the battery pack where there is huge potential for customization.

Secondly, in the vehicle manufacturing segment of the supply chain, the focus will be on maintenance of EVs as much as manufacturing and this will require, upscaling the small and medium scale traditional auto-ancillary companies with the focus on electrical skills. Finally, the “energy as a service” segment comprising of charging stations and energy providers will require massive investments in infrastructure and this is where impetus from the government will be most crucial.

Also read: Electric car sales down by 5%: Indian EV industry sees steady growth in FY2019-20

Road Ahead

Industry experts also point out that the scaling up of the EV industry is not just a demand but also a supply issue and this is well evidenced by the three-wheeler segment, where there are currently one million battery-operated vehicles which if converted from lead-acid to lithium-ion driven battery can generate significant demand and hence the focus should not just be on the consumer segment. Also, the incentive to create disruption which will result in scaling may well come from the newer players as opposed to the established manufacturers who may still be in a wait and watch mode.

Though there has been a flurry of activity in the EV space from the big players such as Hero Electric, Tata Motors, Mahindra and Hyundai to start-ups such as Ather Energy, Okinawa and Nexzu Mobility, COVID-19 has exposed the vulnerability of their manufacturing activities.

Most of these companies import a majority of their crucial components from China and the current crisis has brought into sharper focus the vulnerability of automotive supply chains in the face of disruption and the possibility of a future energy security issue. The potential realignment of global supply chains in the current crisis provides a unique opportunity for government initiatives to propel this sector, however, any measures should leverage our current capabilities with targeted incentives across the value chain for optimal returns.

Authors:

o Dr Vijaya Chebolu Subramanian, associate professors, IFMR Graduate School of Business at Krea University. (Associate Professor) in the areas of operations and economics respectively.

o Dr Madhuri Saripalle associate professors, IFMR Graduate School of Business at Krea University. (Associate Professor) in the areas of operations and economics respectively.

o Ravikiran Annaswamy is the CEO and Managing Director of Numocity Technologies

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

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