Vijay Kumar Gaba: EV

Showing posts with label EV. Show all posts

Wednesday, April 26, 2023

Some trends in automobile sector in India

FY23 sales highest ever, PVs lead, 2W lag

In FY23, the sales of passenger vehicles in India seems to have reached an all-time high of 3.9mn units, recovering fully from the Covid induced slow down in the previous two financial years. In the next three years the sale of passenger vehicles in India is estimated to cross half a million mark. Two-wheeler and commercial vehicle sales have been slow to recover. These are expected to reach their all-time high levels in FY24e.

Overall, 21.4million units of automobiles are expected to have been sold in FY23. The number is expected to increase to 24.7mn in FY24e and 28.7mn in FY25, registering an annual growth rate of over 15%.

Besides local sales, Indian manufacturers exported about 3.7mn units of two wheelers and about one million units of other vehicles to other countries in FY23.

Government pushing for faster adoption of EVs

The government has identified automobile carbon emission as one of the primary sources of air pollution in India. Decarbonization of the transport industry is therefore emphasized as a key focus area in our commitment towards climate change goals. Besides, to enhance energy security and stabilize the trade account, it is considered important to reduce reliance on imported fossil fuel for consumption by vehicles with traditional internal combustion engines.

To meet these multiple goals, the government has been pushing for faster adoption of electric vehicles. As per a recent report by KPMG, “The government, in its 2023-24 Budget, allocated INR5,172 crore to Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME-2) subsidy outlay, a 78 per cent jump than the amount earmarked in the previous Budget. The FAME-2 subsidy accounts for 85 per cent of the total Budget allocation of INR6,145 crore for the Ministry of Heavy Industries.” The incentives have resulted in decent growth in sales of electric 2Ws and 3Ws. In other segments the growth is picking up slowly. In FY22, India sold 326,000 electric 2Ws; 178,000 electric 3Ws; 18,000 electric cars and 2,000 electric buses. KPMG estimates the growth has accelerated from FY24e may see acceleration in adoption of EVs in cars, buses and LCVs.

New highways, better roads to encourage road transport

The government has approved a total of 34,800kms of highways to be constructed

Over 12000kms of expressways have been completed under Bharatmala (phase 1) and various balance work NHDP projects till December 2022. Out of this over 25,000kms have been awarded and over 12,000kms have been completed. The remaining 9500 is expected to be awarded in FY24-25. NHAI has also started the process of awarding 8000kms under Bharatmala phase 2A.

Besides this some large projects at state government levels may also soon kick started. As per a recent Kotak Securities report, “Large bids from states are also under evaluation phase such as Hyderabad outer ring road project (Rs70-80 bn upfront payment), city ring road project in Bangalore (Rs100 bn greenfield project), Pune ring road greenfield project (Rs394 bn in packages), Jalna Nanded expressway (Rs190 bn), multi modal corridor (Rs520 bn) and another stretch of Mumbai coastal road (Rs100 bn). Bidding for these projects can be finalized in the next 6-12 months.”

This of course over and above the accelerated road development and improvement. These projects involve several economic corridors, national corridors and expressways. These will ensure accelerated industrial development and faster connectivity.

Obviously, this will lead to much higher demand for automobiles – both personal and commercial in the coming years.

Some observations

Higher demand for commercial vehicles is definitely a direct reflection of the overall economic growth of the economy. But the sharp rise in sales of personal vehicles needs to be evaluated from various viewpoints.

· There could be a strong argument that India still has very low per capita personal vehicle ownership as compared to peer economies. But this argument needs to be tested in the light of the affordability quotient of an average Indian household. Given that over 800mn Indians are dependent on subsidized food, the denominator used for calculating per capita ownership may need some adjustments.

· The mix of personal vehicle sales in recent years has shifted notably in favor of luxury and premium vehicles, while base models, 3Ws and LCVs have witnessed marked slowdown. This could be a sign of rising inequalities and stress in the SME segments.

· In the past couple of decades, cars and 2Ws have seen a sharp rise in commercial use. App based taxis and e-commerce delivery have been two notable segments of demand for vehicles.

· Internal city roads and parking infrastructure has not improved in tandem with the rise in vehicle population. Most Indian cities are crumbling due to overwhelming traffic.

· Metro rail networks in some cities have improved the overall public transport infrastructure. However, poor last mile connectivity has led to much higher demand for 3Ws, especially e-rickshaw, increasing chaos and traffic delays. City bus infrastructure has not shown much improvement beyond a few metro cities.

· The driver training has been mostly ignored. Most drivers and even driving instructors appear to be mistaking “knowledge to operate the vehicle” for “driving skills”. This is leading to a material rise in the cases of road accidents and road rage.

· The management of highways and expressways is extremely poor. Most expressways lack basic facilities. Rescue operations take a long time in cases of breakdown and accidents. The equipment and personnel to regulate errant drivers are grossly inadequate.

· Vehicle ownership is also becoming a serious vanity issue in society. In numerous cases the decision to buy a vehicle is driven by “status” consideration rather than a “need” consideration. Motorcycles and SUVs are becoming basic “dowry demands” in traditional marriages. It is observed that in many cases these demands are made despite poor affordability of the bridegroom to operate, maintain and park the vehicle.

The point is that the rise in personal vehicle ownership may not necessarily be an encouraging sign for the economy and society in all cases. The government needs to do a comprehensive impact analysis and if required consider an appropriate regulatory framework.

Thursday, March 24, 2022

Roadmap to achieve clean energy targets

In the past 3months, the NITI Aayog has published two important reports regarding electric mobility in India. The first report presents a blueprint for inclusion of electric vehicles (EVs) in priority sector lending to stimulate the demand for EVs. The second report, emphasises on the need for advanced chemistry cell energy storage in India. These two are inarguably amongst the primary considerations to promote faster and wider adoption of clean fuel operated mobility solutions in the country.

It is pertinent to note in this context that India has committed to the global community that by the year 2030, the share of electric vehicles in the total vehicles sold in India would be 30% (EV30@30).

The key highlights of the NITI Aayog’s reports are as follows:

Facilitating easy and adequate credit for EVs

· Cumulative investment in India’s electric vehicle (EV) transition could be as large as INR 19.7 lakh crore ($US266 billion) between 2020 and 2030. There is a need for higher liquidity and lower cost of capital for EV assets and infrastructure.

· Given the nascency of EV technology and adoption, FIs such as banks and non-banking finance companies (NBFCs) are not lending to EVs due to associated asset and business model risks (see Exhibit 3). These risks are both real (e.g., uncertainty of resale value) and perceived (e.g., product quality). As a result, if financing is available, EV buyers are unable to obtain terms (i.e., interest rates and tenures) that are comparable to ICE vehicles. Governments across the world are recognising this challenge and are introducing supportive measures to facilitate easier financing of EVs.

· Off-grid solar and off-grid renewable energy solutions for households were included within PSL guidelines in 2012.21 In 2015, renewable energy was included as a priority sector. This widened the scope of lending to larger installations and renewable energy-based public utilities.

· Including EVs in the Reserve Bank of India’s priority sector lending (PSL) guidelines can complement the $US300 million facility and encourage the financial sector to mobilise necessary capital. It can ensure a swift and equitable transition to EVs.

· The economic case for promoting the adoption of Electric two- and three-wheelers, as well as four wheelers in commercial use cases is compelling. Easy and cheaper formal credit is desirable for higher rate of adoption in rural areas, especially due to high employment creation potential.

· While inclusion of EV credit in priority sector lending mandate is promising, additional policy and market measures would be required to address other challenges, which include state level fiscal incentives, open data on vehicle performance, industry-led buyback programmes, and loan guarantee facilities.

· NBFCs will be important to expanding financing for EVs due to several factors. First, the vehicle finance market share of NBFCs has been increasing over the past five years. However, NBFCs have been facing a liquidity crunch since 2017 that has been worsened by the effects of COVID-19. This may translate to EV-first NBFCs struggling to access low-cost finance from banks. The PSL guidelines allow for co-origination of loans to the priority sector between banks and NBFCs. Both entities thus share risks and rewards.

Developing an advanced energy storage ecosystem

· At the COP26 summit, India committed an ambitious target of 500 GW of non-fossil fuel-based energy generation in India by 2030 and reduction in the total projected carbon emissions by 1 billion tonnes by 2030. Obviously, to meet these targets India needs a significant amount of grid storage and a large increase in the number of electric vehicles (EVs). This requires stepping up local manufacturing, exploring new avenues, and allowing global competition in the energy storage business.

· A matured domestic battery manufacturing ecosystem is expected to create competitive advantages and contribute to India’s energy security. This will require a combination of demand and supply-side measures.

· The annual market for stationary and mobile batteries in India could surpass US$15 billion by 2030, with almost US$12 billion from cells and US$3 billion from pack assembly and integration, under the accelerated case scenario. Even under a more conservative case it amounts to an annual market of US$ 6 billion.

· Currently, India has a negligible presence in the global supply chain for manufacturing of advanced cell technologies. Advanced batteries are a cornerstone technology, and their manufacturing within India could allow domestically sourced batteries to cater to the demand generated from EVs, grid storage applications, consumer electronics, and other uses. It is an opportune time for India to step forward and support the development of a domestic battery manufacturing ecosystem that meets its future energy storage market needs and helps reduce its dependence on imports to meet the future advanced energy economy demands.

· In the accelerated scenario, battery demand is expected to rise to 260 GWh by 2030. This would require nearly 26 gigafactories with an average advanced battery production capacity of 10 GWh per year. The conservative scenario battery demand would require 10 gigafactories by 2030. Since India has no manufacturing plants at this scale now, developing and rapidly scaling its advanced battery manufacturing industry is expected to require focused and coordinated public-private actions.

· Batteries currently account for 25%–50% of the total cost of an EV depending on range and performance. While battery costs are declining rapidly, the battery will remain a critical component of the EV supply chain.

· For grid operators, energy storage systems can provide a suite of ancillary services that supports the reliable and efficient operation of the electricity grid. Renewable resources such as wind and solar can fluctuate in output both at the daily scale and the seasonal temporal scale. Seasonal storage is required at very high levels of renewable penetration to store large amounts of energy for weeks to months to bridge the gap between seasonally variable renewable energy output.

· The mobile and electronics industry in India is fast growing and diverse with a significant reliance on high-performance batteries across a wide range of applications. Mobile phones, power banks, IT hardware, telecom devices, smart agriculture, defence electronics, and other portable devices all require high density and safe integrated batteries.

Tuesday, February 23, 2021

EV ride

For a large part of 20^th century Coal was a very important part of our lives. Railways, which were the largest medium of long distance inland travel, operated mostly on coal. An overwhelming proportion of electricity was generated using coal. The black gold was also a key ingredient for producing steel, cement, aluminium, copper, and a variety of chemicals. Things began to change slowly in second half of 20^th century and change accelerated in the last quarter of the century. Petroleum and Natural Gas started to gain share as major source of transportation fuel, electricity production, industrial feed stock and medium for cooking. From last decade of 20^th century, the share of renewable sources in India’s energy mix is also rising consistently. Nonetheless, coal remains the most important source of energy for Indian consumers and industry.

As per the latest data published by USEIA, “primary energy consumption in India has nearly tripled between 1990 and 2018, reaching an estimated 916 million tons of oil equivalent. Coal continued to supply most (45%) of India’s total energy consumption in 2018, followed by petroleum and other liquids (26%), and traditional biomass and waste (20%). Other renewable fuel sources make up a small portion of primary energy consumption, although the capacity potential is significant for several of these resources, such as solar, wind, and hydroelectricity.”

The agency further noted that “India was the third-largest consumer of crude oil and petroleum products after the United States and China in 2019. The gap between India’s oil demand and supply is widening. Demand for crude oil in 2019 reached 4.9 million b/d, compared to less than 1 million b/d of total domestic liquids production.”

Also “Diesel remains the most-consumed oil product in India, accounting for 39% of petroleum product consumption in 2019, and is used primarily for commercial transportation and, to a lesser degree, in the industrial and agricultural sectors.”

It is also important to note that out of the most 30 polluted cities in the world, about two third are in India. About 1.7million deaths (about one fifth of all deaths) are attributed to pollution every year (see here). It is also estimated that India loses about 1.4% of GDP every year due to pollution.

The India’s thrust for use of electricity as primary transportation fuel must be assimilated in this background. In my view, there are two primary objectives for increasing the share of electric mobility:

(a) Achieving energy security, by reducing reliance of imported fossil fuels; and

(b) Reducing carbon emission by vehicles.

As per a study by KPMG India, by 2030 India should expect EV penetration of 65-75% in 3W; 25-35% in 2W and 10-15% in personal 4W and 20-30% in commercial 4W and about 10-12 in overall busses.

In my view, like mobile telephony and digital payment, the pace of acceleration in adoption of EVs would surprise most of the analysts and administrators. The usage of EVs would only be limited by the lacunae in ecosystem rather than the willingness of users.

Innovative solutions for faster development of EV ecosystems are already being devised. Business models such as battery swapping would alleviate the need for millions of charging points, for example.

Three things must be taken care of in developing the EV ecosystem in the country:

(i) Power generation through renewable sources must be accelerated materially. Charging EV batteries with thermal power will not serve the purpose of pollution control.

(ii) India should try to become self-reliant in manufacturing of EVs, including all components. Otherwise, EV related import will replace fossil fuel import defeating the purpose of security.

(iii) A strong framework for end disposal of used batteries and EVs must be established beforehand.

Insofar as investment ideas in listed space are concerned, I believe it will be a mixed bag for most existing OEMs and component manufacturers. Some will gain, some will lose and some might become redundant. The new crop of entrepreneurs which will focus exclusively on EVs will have plenty of gainers. I shall keep a watch for opportunity to invest early in some of these new ventures as and when they list; for I am too small to invest in an unlisted enterprise.