This will prod ICE-makers transition faster; transition critical for lowering emissions and India’s oil import bill
The government is believed to be re-vamping the production-linked incentive (PLI) scheme for automobiles to support only electric vehicles. That’s the spark the sector needs. Painful as it may be for manufacturers of ICE vehicles, the industry must transition to electric mobility in the coming years. Along with OEMs, the ancillaries too must keep pace with clean technology because the supply chain needs to be indigenised. Without affordable components, the economics will be thrown out of gear.
The ICE automakers run very profitable businesses. But, the cozy oligopoly in the two-wheeler space will slowly shrink. The electric two-wheeler market might not be very big today with some half a dozen players, including some in the start-up space. Volumes, by one estimate, were a little short of 1.45 lakh in FY21. In all, 2.37 lakh EV vehicles were sold in FY21.
However, as analysts have pointed out, the strong cash-flows of incumbents could start shriveling unless they are able to build sustainable EV businesses. To be sure, the aggression of the new players—including start-ups like Ola—has already prompted them to take the plunge. Hero MotoCorp is hoping to roll out an EV product next year under its own banner as well as with its joint venture partner, Gogoro. TVS Motors is working overtime on its new launches. Rajiv Bajaj, managing director at Bajaj Auto, has talked of how a whole new set-up would be needed for EVs, saying the existing outfit may not be the best place to make the most of the new opportunity; Bajaj said in a television interview recently that a new business model is called for with fresh talent and new brands. Carmakers, including Tata Motors and Mahindra & Mahindra, too have lined up EV launches
It is not as though automakers haven’t realised the imports of going green; they understand there is a huge market waiting to be tapped. But, to help them take the leap, and to ensure the transition is smooth and quick, the government must continue to roll out incentives. The outlay for the auto PLI is believed to have been slashed by about half from the allocation—for all vehicles—of Rs 58,000 crore. That’s a tidy sum of Rs 29,000 crore, enough to get the scheme going, but the government must throw in more if needed. A couple of months back, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme for electric two-wheelers was reworked to bring down the up-front of both two- and three-wheelers. The scheme was extended by a couple of years and the allocation was also upped; the scheme had been languishing with very poor offtake. The Gujarat government has done its bit throwing in additional sops for EVs.
The transition to EVs is, of course, critical if India is to reduce carbon emissions and meet COP 21 targets; road transport contributes about a fourth of carbon emissions. Equally important, India’s huge oil bill would come down, saving the country large amounts of foreign exchange. The PLI for advanced chemistry cell (ACC) batteries should speed up the process. This will bring down battery costs which account for 30-40% of the total cost of an EV. The migration is expected to be swifter for two-wheelers given the competitive economics is better compared with ICE vehicles.