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India’s transition to electric vehicles - the road ahead

Prime Minister Narendra Modi announced ambitious climate change targets at COP26. The transport sector in India is one of the highest emitters of greenhouse gases, so how fast can electric vehicles replace conventional ones?

At COP26, India committed to cut its emissions to net-zero by 2070, and with emissions intensity expected to be reduced by 45% by 2030 from the 2005 levels. With the transport sector being one of the highest emitters of GHGs in India, this puts a spotlight on how fast electric vehicles can replace conventional vehicles.

The penetration of Electric Vehicles (EVs) in India has been increasing, but still stands at approximately 1.66% of total sales in the country. Ownership is particularly low for four-wheelers, which only constitute 0.1% of total car sales. To increase the uptake of EVs across all vehicle classes, the Government of India not only needs to iron out roadblocks such as high EV component costs, but also ensure that local manufacturing and infrastructure deployment happens in a sustainable manner.

What does India’s EV landscape look like?

Though India hasn’t pledged to phase out conventionally fueled vehicles by a certain year, it has an ambitious target to have 30% of all new vehicle sales be electric by 2030. This could potentially allow India to save on crude oil imports worth over $14 billion annually. Rapid adoption of two- and three- wheelers (LEVs- Light Electric Vehicles) is expected to lead the way to this transition.

The Indian government has allocated $96.8 million to a scheme (FAME- Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India) and has introduced several supply and demand-side incentives to facilitate the switch to EVs. Some states have also set their own ambitious EV targets; 18 out of 28 states have either a draft policy in place or have already notified one.

Balancing local production of EVs with imports

The Indian government has been keen on developing local capacity to produce electric battery components and has heavily pushed scaling up domestic manufacturing (through interventions such as production linked incentives). This is starting to bear fruit - many global companies are now looking into setting up Lithium-ion battery units and other EV component production in India. Local companies have also entered the EV space.

More measures are also likely to be announced by the government to boost the local production of vehicles. However, disincentivising imports through heavy import duties may not be the right approach in the short run. The government has set an import duty for all cars priced below $40,000 at 60% and at 100% for cars priced above $40,000. Import duties on EV components such as Lithium ion cells and battery packs were also hiked in 2021. This keeps the cost of vehicles high compared to conventional vehicles, especially for the four-wheeler segment. A temporary reduction in import duties may allow vehicle manufacturers like Audi and Tesla to attain adequate volumes to be able to commit to manufacturing them locally.

Charging points for all: plugging the gap

The lack of adequate charging infrastructure, leading to consumers’ range anxiety, is often cited as India’s key roadblock to boosting EV uptake. While the FAME scheme is expected to set up 2,877 charging stations in 68 cities across 25 states by 2024, India only has 934 charging stations to cater to all types of vehicle classes as of June 2021. In comparison, China has approximately 900,000. As the central and state governments start planning for public charging installation, offering incentives to private players and housing societies (such as property tax relief), there is a need to also look beyond the deployment of EV charging in only commercially viable spaces.

The planning process also needs to strike the right balance between low- and high-power charging points in locations that ensure equitable access to a diversity of EV users. A switch to EVs represents the opportunity for communities to move towards less localised air pollution, and the onus is on the government to ensure these benefits are accrued equitably.

Looking ahead towards a circular economy

In 2019, the Indian government launched National Mission on Transformative Mobility and Battery Storage to “drive clean, connected, shared, sustainable and holistic mobility initiatives”. This mission has focused on setting up large-scale, export-competitive integrated batteries and cell-manufacturing plants in India. However, little has been done in the way of sustainable end-of-life management of batteries, especially for lithium-ion batteries that EVs run on. The demand for battery recycling is expected to grow over the next few years, especially as the growth in EVs picks up. As such, EV batteries will account for 80% of the market share in the lithium-ion battery market by 2030.

This gives the government an opportunity to plan ahead and ensure that mechanisms are in place for batteries to be repurposed for secondary applications or to be recycled for metal recovery. This would serve the purpose of reducing the environmental threat posed by battery waste, and also counter India’s limited lithium deposits. The Government of India’s draft rules (2020) on Battery Waste Management, which places the onus of recycling on the battery manufacturers, is a step in the right direction. However, the battery recycling industry also needs to be propped up on time with the introduction of adequate incentives and an improved regulatory environment. Companies such as Gravita India are already eyeing this market, which is estimated to amount to $1000 million.

While it is clear the market for EVs is set to expand in India, challenges that impede rapid adoption remain. These include high upfront costs and a lack of support infrastructure. Policymakers need to think about how to create policy environments that make these hurdles less insurmountable, and equitable, sustainable deployment of electric vehicles must be a cornerstone of all such policies – the technology is ready, now we need the political will to make the electric revolution a reality.

About the author:

Safa Khan is a climate change and disaster recovery consultant for Oxford Policy Management.