To BEV or not to BEV, are consumers really adopting electric cars in India?

In a conversation with Financial Express Online, Ravi Bhatia, President & Director, JATO Dynamics is very optimistic. According to him, “Between 2019 and 2023, the demand for electric four-wheelers increased by 4690%. This is a much faster rate of growth than the demand for traditional gasoline-powered vehicles, which only increased by 36% over the same period. These trends are likely to continue in the future. As the cost of batteries continues to fall and the range of electric vehicles continues to improve, it is likely that the demand for electric vehicles will continue to grow at a rapid pace. This could eventually lead to electric vehicles becoming the dominant type of four-wheeler on the road.”

Though the economic viability of EVs for private buyers persist, recent data suggests that these concerns may be easing. This only goes on to highlight that the consumers in India are willing to pay a higher price for EVs given the environmental advantage that they seem to signal and also the better TCO. In most cases, the second point is the first priority with the environment benefit providing the additional boost.

“The stricter emission regulations due to rising pollution, the government focus on reducing crude oil imports, lower GST taxation for EVs and state schemes for reduced or no road tax for EVs. Additionally, income tax benefits for purchasing EVs, multiple product developments from carmakers, and rising consumer awareness towards cleaner technologies have also contributed to surge in demand,” added Gaurav Vangaal, Associate Director – Light Vehicle Production Forecasting – Indian Subcontinent, S&P Global Mobility. However, he says EV adoption still has a lot of challenges in India.

Growth of electric vehicles in India

If one looks at the various electric cars sold in the country, a vast majority of offerings in the mass market segments are electric variants based on existing IC-engine platforms. This means that these electric cars were not designed from scratch or ground-up, but the OEMs modified these platforms and incorporate electrification on the same.

An industry stakeholder who did not wish to be identified pointed out that while he currently owns and operates a fleet of electric cars, their viability is yet to be proved. One also has to take into consideration that just like their ICE-counterpart, not all electric vehicles appeal to the consumers. For instance, the MG Comet EV was launched as a quirky micro-car for city commute but the sales have been relatively muted. A similar trend can be observed for the Mahindra XUV400 and Citroen EC3 (see table below).

On the other hand, Tata Motors has been able to slowly garner a good share in the mass-market electric car segment with the success of the – Tiago, Tigor, Nexon electric offerings – and will hope to repeat the same with the Punch.EV.

“The average retail price of electric four-wheelers in India witnessed a significant decrease in 2023. Compared to Rs 18.52 lakh in 2022, the average price dropped to Rs 17.73 lakh in 2023. This 4.3% decline marks a noteworthy trend, especially when placed against the backdrop of rising fuel costs for traditional gasoline-powered vehicles. The decline in average retail prices is a positive indicator for the Indian EV market. It suggests that EVs are becoming more accessible to a wider range of private buyers, who were previously hesitant due to the higher initial cost compared to gasoline-powered vehicles. While the price point of Rs 20 lakh remains a benchmark for affordability for many, the decreasing trend is certainly encouraging,” elaborated Bhatia.

Hybrids and resale value

Just like any other new technology, electrification in the automotive industry has yet to reach a level of maturity globally. Credit where due, it is not as if the automotive industry is ignorant to the emission concerns, but the lack of charging infrastructure, fiscal incentives, raw material prices, and maturity of technology also have a huge impact on their future plans.

It is also interesting to note that despite higher taxation on hybrids, Indian carmakers have launched a slew of models and their acceptance in the market has also been quite overwhelming despite a high price tag. This can be attributed to the maturity of the technology allowing for a lower running cost, along with the easy availability of refuelling anywhere in the country.

Vangaal believes, “We are currently witnessing the initial competitive phase between electric and hybrid vehicles. Both technologies were recently introduced in India, we understand the future leans towards electric vehicles, however, the initial success of Grand Vitara and Innova Hycross has also made hybrids a viable choice in the mid-term.  It may be premature to assert that consumers prefer hybrid technologies over electric vehicles, but initial trends do suggest this. But with multiple product actions in coming years from Mahindra & Mahindra, Tata Motors, Maruti Suzuki India, Toyota Motor Corp in the electric vehicle segment is expected to re-ignite the consumer interest.”

Challenges and outlook

One of the key concerns for electric vehicle users globally has been on the range and charging infrastructure front. While the range is the function of a combination of the battery capacity and driving habit, the lack of confidence in having an EV charger close by when needed has been a deterrent for most potential customers.

Vangaal pointed out that “The lack of charging infrastructure, the replacement cost of batteries, range anxiety, the high cost of new EV vehicles, the lack of an established used car market, or consumer concern about the resale value of an EV are the challenges for the adoption of electric four-wheelers in India.”

According to him, while EV adoption is at the nascent stage in India, the resale value plays an important role in the decision-making of value-conscious Indian buyers. “The resale value for EVs is yet to be established, as we are currently seeing early adopters of the technology. Any improvement in battery technology will play a significant role in the resale value.”

Bhatia on the other hand explained that the growth drivers such as falling battery prices and increasing competition will make EVs more affordable, bringing them closer to the Rs 20 lakh benchmark. Then there are the EV incentives and regulations push, including stricter emission standards and bans on IC-vehicles. Furthermore, improvements in charging time, infrastructure, performance, and environmental concerns are all positive for the industry.

Supply chain constraints, such as the ongoing semiconductor and raw material shortages could hamper production and slow down sales growth. “Upgrading electricity grids to handle the increased demand from EVs will require significant investment. Lastly, changing deeply ingrained car-buying habits and addressing misinformation about EVs remain crucial tasks,” concluded Bhatia.