Recently, there has been a lot of talk about how electric vehicles (EVs) will adversely impact India’s GDP and cause large job losses.
Recently, there has been a lot of talk about how electric vehicles (EVs) will adversely impact India’s GDP and cause large job losses. It is now increasingly understood that in a decade-and-a-half, EVs will replace the present internal combustion engine (ICE) vehicles using petrol/diesel or CNG. EVs have about five times higher energy efficiency and much higher reliability as compared to ICE vehicles. In the coming years, the cost of the EVs will be comparable to that of ICE vehicles and running cost per km will be a fraction. The change-over is imminent. This technological disruption will take place throughout the world, transforming the auto sector. It cannot be stopped.
The automotive sector contributes 7.1% of the GDP and fuel contributes about another 5% of the GDP. The sectors also employ a large number of people. As EVs grow and become dominant, the threat—if nothing is done to counter it—is genuine. But, what is the purpose in crying over a disruption that will happen anyway?
The sensible response would be to prepare for the changes and drive the transformation to our advantage. We need to master the new technology, adapt and innovate and use it to not just defend the share of the auto sector in our GDP and the jobs, but also cause these to grow. First of all, the change indeed has huge benefits. It will free us of one of the biggest causes of pollution and make our cities pollution-free. Second, oil accounts for the largest chunk of import bill. Switching over to electricity can free us of this. As electricity is increasingly produced from renewables, India would make a huge impact in terms of reduction of CO2 emissions. Customers will indeed benefit from lower costs. Apart from these, let us take a deeper look at what could be the GDP and jobs scenario with EVs.
Electric vehicles without batteries would cost less than today’s ICE vehicles. But once we add batteries, the cost of the vehicle becomes marginally higher than the ICE vehicles. Thus, when EVs and cells and batteries are all taken into account, GDP contribution of the auto-sector should be higher than that of today. As oil (with 5% contribution to GDP) gets replaced with electricity, fuel costs will go down, and fuel’s contribution to GDP may go down by two-thirds. Thus, a gross estimate will show that today’s 12% contribution to GDP by auto and fuel for transport may edge towards 9.5%.
This shows an estimated 2.5% loss in GDP, but we must delve deeper. Our quick calculations do not take into account the raw materials that will be needed for cell-manufacturing. The EV battery cells need materials like lithium, manganese, cobalt, nickel and graphite. Unfortunately, India does not have significant resources for any of these materials. If we import these materials in large quantities, it will be somewhat like import of crude oil. But India already has the technology to recycle used lithium batteries in an environmentally safe manner and recover almost 95% of these materials at a cost less than that of the imported raw materials. It is possible for India to not only recycle all its used batteries, but also import used batteries from elsewhere and recycle. Such “urban-mining” could contribute significantly to our GDP. Further this industry is highly job-intensive, requires only modest investments, and can be set up in most parts of the country. Similarly, if electricity is to be produced from solar photovoltaics, there is an opportunity to make wafers, cells and modules in India (today, we import most of them), and this would contribute to our GDP. Then, there will be new opportunities in terms of charging and battery-swapping infrastructure. Besides, as has been shown by Ola and Uber, new opportunities in the transport industry could be accelerated by onset of EVs. The growth in telematics is another such example. Overall, there will be a growth in electronics sector, and there could well be other as yet unforeseen new business opportunities. There is no reason to believe that there will be losses in GDP or jobs, if we act wisely. The size of our market allows us to create these EVs at an economies of scale that will keep us competitive. Indeed, if we ride the wave of technological change (something India has not been known to do in the past) instead of following it, we may create opportunities for ourselves through exports to actually grow our GDP and jobs significantly.
Of course, like any other technological disruption, the emergence of EVs will mean some of the old industries will have to either transform or disappear. Thus, the most important task is to ensure that we import raw materials and finished goods for EVs minimally and grow the new industries which will contribute to the EV ecosystem. This will require new technology development and commercialisation at a rapid pace, and early entry into the market. In today’s fast-paced technological world, the early birds get to take all the worms. R&D institutes, industry, academia and start-ups have to carry out designing and innovate and ensure that India leads in at least some of the technology-segments.
Fortunately, India’s auto segment has certain unique characteristics. We need vehicles that are affordably priced and huge subsidies cannot be made available for EVs in India as has been done elsewhere. Our driving speed in cities is lower and, therefore, the motors have to have optimum performance at speeds different from that in the West. The temperature in many parts of the country exceed 35-40 degrees for a significant part of the year and fast-charging of batteries at such temperatures severely impacts battery-life. All these challenges actually are opportunities for innovation. Scaling our innovative solutions early will give us an edge in specific areas of the emerging EV industry, which we could use to grow our industry to global scale.
However, time is of the essence. The next few years are crucial for innovating, achieving global scale, and a competitive edge. If we cry over the impending disruption and attempt to try and postpone it, we will lose. We need to join the race today towards the new dawn.
The author is Professor, IIT Madras.