Mon. Oct 3rd, 2022


Automotive Monthly Newsletter and Podcast
This month’s theme: India’s Decarbonization Goals and the EV
Conundrum

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Electric vehicles (EVs) have occupied a lot of media space of
late and are widely regarded as the next big breakthrough
technology in the automotive world. Although EVs are as old as
motor vehicles themselves, they lost the race to internal
combustion engine (ICE) vehicles, running on liquid fuel, by the
early 20th century. But with the rising threats of global warming
and air pollution, EVs are back on the discussion tables of
policymakers. ICE-powered conventional vehicles emit several
pollutants, among which carbon dioxide (CO2) is
considered the most concerning emissions from a climate change
perspective.

India is the third-largest emitter of CO2 in the
world, behind mainland China (almost four times of India) and the
United States (two times of India), with its annual CO2
emission doubling in the last decade. Although India’s contribution
to the cumulative global CO2 emission, since the
industrial revolution of the mid-19th century, is insignificant,
its current position as an emerging economy and hence a big
CO2 emitter comes under environmentalists’ lenses. Ever
since the formation of the United Nations Framework Conventions on
Climate Change (UNFCCC), India’s position has been to put its
socio-economic development above the resultant CO2
emissions and refrain from putting itself in the same
carbon-reduction target brackets as the developed nations.
Nonetheless, India has been an active and important party in all
global climate action summits and conferences, negotiating for
emerging economies who came late to the ‘development’ party.

This stance remained consistent until 2014 when a new government
came to power that had intentions of not only being a mere party in
global climate action strategies but of taking a leadership
position. Eventually, India ratified the Paris Agreement during the
COP21 held in 2015 and pledged to reduce the carbon intensity of
its economy by 33- 35% by 2030 compared with 2005 levels and
committed to achieving a non-fossil share of cumulative power
generation of 40% by 2030. India also announced to install 2.5-3
billion tons of CO2 equivalent carbon sink by 2030.

In 2013, under the National Electric Mobility Mission Plan
(NEMMP), it was envisioned to transform the mobility landscape in
India and make EVs an important part of it. As a result, a new EV
promotion scheme was drafted by the Ministry of Road Transport and
Highways (MoRTH). By the time it was rolled out in April 2015, it
was named the Faster Adoption and Manufacturing of Electric
Vehicles (FAME) scheme and a new government was in power. The
creation and expansion of the low-speed e-scooter segment aside,
Phase 1 of FAME (April 2015 to March 2019) did not exactly produce
the results as intended.

Considering India’s Paris Agreement goals and COP21 commitments,
the government redesigned Phase 2 of the FAME scheme—an outlay
of INR10,000 crore (USD1.4 billion) over three years starting April
2019 and focusing on 2-wheelers (2W)/3-wheelers (3W)/bus segments
that move about 85% of the people of India. Simultaneously, EVs
were brought under the 5% bracket of GST to entice automakers into
launching new EV offerings, and an additional income tax reduction
clause was introduced as an additional incentive for prospective EV
buyers. However, after two years of Phase II, about 2% of the total
outlay for this phase got utilized. In this period, the sales
figures tell a sorry tale—fewer than 10,000 electric passenger
vehicles (PVs) and fewer than 300,000 electric 2Ws were sold.

In 2021, Primer Minister Narendra Modi announced at COP26 that
India would achieve net-zero emissions by 2070. Road transport is
expected to be a significant contributor to India’s decarbonization
plans. According to the International Energy Agency (IEA),
transportation sector is the third-largest CO2 emitter
in India, following the energy sector (i.e., electricity and heat
producers) and the industry sector. Road transport, estimated to
account for about 270- 290 metric tons (Mt) CO2
emissions and 18% of India’s total CO2 emissions in
2020, is the top contributor in the transportation sector carbon
emissions and emits more than the energy-intensive industries such
as steel (242 Mt CO2 in 2020) and cement (143 Mt
CO2 in 2020) production. The business-as-usual
development mode is expected to result in 1.2- 1.5 Gt
CO2 emissions from the transportation sector in 2050,
according to multiple research sources.

India’s light-duty vehicle fleet has advanced to fuel
consumption reduction from 6.9 L/100 km in 2005 to 5.7 L/100 km in
2019, contributed by higher diesel vehicle share and overall
lighter vehicle weight. However, increased personal vehicle
ownership and use is foreseen with the economic and pollution
growth combined, and will inevitably result in more annual
CO2 emissions in the short term. The transportation
sector may have to lag the overall 33- 35% decarbonization goal
from 2005 levels (i.e., 115 Mt CO2 sector level) by
2030, thus needing significant innovative technologies, strategic
planning, and effective regulatory leverages to keep the sector
aligned with the net-zero climate ambition. Acceleration in further
vehicle efficiency improvement, fleet electrification, alternative
fuels, along with mobility mode innovations will be the key
solutions.

India has required fuel efficiency labeling for new vehicles
since 2011 and regulated PV fuel efficiency since 2014. The current
target is 4.77 L/100 km (113 g/km CO2 equivalent) for
2022 based on the New European Driving Cycle (NEDC). The FAME II
scheme has been extended through 2024 to promote EV production and
charging infrastructure deployment.

Overall, considering the level of visibility on the policy
front, carmakers’ product development strategies, oil price, and
consumer evolution, we expect the share of EVs to reach about 9% by
2030 in a base case scenario. But if policy support in terms of the
special tax on manufacturing and sales and direct subsidy
continues, with stricter CO2 regulations, the share of
EVs could be higher ranging from 16% to as high as 21% by 2030.

Having said that, fiscal year (FY) 2021 (April 2020 to March
2021) had been a positive year as sales of electric PVs grew 110%
owing to a low base; from about 2,850 units in FY 2020 to about
6,000 units in FY 2021 as reported by the Society of Electric
Vehicle Manufacturers (SMEV) of India. And the electric PVs sales
for the first half of the current FY 2022 have already crossed the
FY 2021 annual sales. The main driver for this was the introduction
of EV policies by several states of India led by Maharashtra, New
Delhi, and Gujarat, which acted as an additional incentive over the
FAME subsidies.

Interestingly, in the EV space, domestic carmakers have taken a
lead as Tata Motors currently holds almost 60% of the market. IHS
Markit’s estimates show that Tata Motors will continue to maintain
a leadership position even in the longer horizon. We do expect the
current conventional vehicles market leaders such as Maruti Suzuki
and Hyundai, and other carmakers like Mahindra and Kia to introduce
serious EV products into this space in the next four to five
years.

Overall, considering the level of visibility on the policy
front, carmakers’ product development strategies, oil price, and
consumer evolution, we expect the share of EVs in Light Vehicles
(LVs) up to 3.5 tons of Gross Vehicular Weight to reach about 9.3%
in 2030 (as shown in the figure). Within LVs, we expect the Light
Commercial Vehicles (LCV) category to achieve greater
electrification of about 15% by 2030.

For the PV category, the share is expected to be about 8.3% in
2030 in a base case scenario. The B-segment SUV-bodystyle is
expected to be the most popular segment for EV adoption. If policy
support in terms of the special tax on manufacturing and sales and
direct subsidy continues, with stricter CO2 regulations,
the share of EVs could be higher ranging from 16% to as high as 21%
by 2030.

Notes:

  1. The data and chart used in the article are based on the
    Production-based Powertrain dataset. Currently in India, almost
    100% of EV production is for domestic sales and hence production
    can be used as a reliable proxy for sales.
  2. EV in this article only represents pure Battery Electric
    Vehicles.

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Posted 25 February 2022 by Suraj Ghosh, Associate Director, Powertrain & Compliance Forecasts, S&P Global Mobility

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