What are the automobile companies doing?
In light of the increasing consumption of fossil fuels and the rise in global CO2 emissions, sustainable mobility has assumed greater importance in recent years, and research dollars are being spent to understand how the transportation sector can help mitigate the looming crisis. Faster adoption of EV and hybrid vehicles is a clear necessity since the transport sector is the second largest emitter of CO2 globally and the highest in India (refer to Figure 1). Therefore, governments, climate change activists and industry bodies are all suggesting a move towards alternate and greener technologies.
Global brands like Tesla, Suzuki and Honda, as well as Indian auto multinationals like M&M are increasingly aware of the huge opportunities in this new field. And India could prove to be the ideal location to set up a manufacturing base. True, Maruti Suzuki’s stronghold on the Indian market might deter some, and the concerns raised by some global brands like General Motors and Skoda regarding Indian consumption, might lead potential entrants to question whether India is the right market. I am certain that the EV space offers global auto giants the ideal entry point to enter the Indian market and carve a niche for themselves. This is because of the promise it holds and the policies that are being drafted to promote growth. Some trends in this direction are heartening. Tesla Motors, the world’s most successful electric car manufacturer, is planning an Indian entry with its upcoming sedan that is expected to be priced between ₹1.8 – 2.4 million (₹18 – 24 lakh) which is half the price of what other companies are charging for such sedans in India. The company is also working on budget editions of other models as a part of its strategy to lure India’s growing middle class, while being aware of its actual spending power.
M&M, one of the pioneers in the Indian EV segment, is currently working on making the cheapest electric SUV in the world, and it has been christened S 107. It’s an electric version of the now famous KUV that’s already in the market. In addition, it is also ramping up production of the Verito Electric model to reach economies of scale.
Maruti Suzuki, the manufacturer with the highest market share in India, has already made an entry into this segment with the Ciaz hybrid model. The company intends to enter the EV segment as well, to benefit from the FAME scheme. The chairman of Softbank has stated that his organisation plans to donate 100,000 EVs to Ola, as a part of its investment in the organisation. Even if 25,000 EVs get onto Indian roads, it would lead to a better understanding of the new category, considering the wide presence of Ola. These are some of the leading indicators that augur well for the sector.
How companies are monetising the opportunities at hand is a question that needs deeper understanding. India has one of the highest import duties on finished goods. That’s a huge deterrent for firms like Tesla. Unlike other cars in the EV segment, Tesla is one of the only firms to offer a driving experience very similar to petrol/diesel cars. Being able to zoom from 0 – 100km/hr in 3 – 4 seconds, is currently unheard of among electric cars, though Tesla promises this. Currently, the challenge before Elon Musk is to replicate such advanced engineering on Indian soil, since import duties will make importing a semi knocked down version from California too expensive for Indian consumers. Recent reports suggest that Musk’s meetings with the government have gone positively and so, maybe the new EV policy will have some concessions for companies to initially import directly before they join the Make in India campaign.
The challenges prior to making the Big Leap
Unlike traditional vehicles, the EV market has to overcome different obstacles. It needs a different value chain and the relevant infrastructure, such as charging stations, etc. The biggest challenge is consumer perception towards its practicality, functional advantages, cost/return on investment, convenience, travel range, and charging infrastructure. Any policy that the government makes must first try to address the consumer issues before it addresses the industry issues. To succeed in the current environment, OEMs will need to evolve and understand the value of the changing mobility market. Another factor would be the convergence of technologies and technology providers — gone are the days of single auto giants enjoying market hegemony; today, it’s all about collaboration.
Accenture has recently come out with a very well drafted report, which offers a global perspective on the EV market, as well as a view on emerging markets like India where the potential to grow is enormous. According to this report, the key drivers for any plan to succeed are: