ELECTRIC VEHICLESCHANGING GEARS

KRISHNAMURTHY

Favourable regulations from both central and state governments kickstarted the electrification drive in India Incrementally, factors like better product acceptance, heightened environmental awareness, etc improved the electric vehicle (EV) penetration levels in the last two years (from less than 2% in FY2022 to over 5% in FY2023e) As EV demand remains buoyant, the trend is expected to continue over the next decade. ICRA estimates the EV penetration levels to reach ~40% in the bus segment, 30% in the case of two-wheelers, and 15% in passenger vehicles by 2030 That said, it is imperative to have supportive regulations, a better financing environment, a conducive battery ecosystem, a charging infrastructure, etc

Against this backdrop, Union Budget 2023-24 has provided impetus towards the electrification drive both from a near-term and long-term perspective The Budget's proposals are largely favourable for the automotive industry Growth-oriented policy measures encompassing sizeable outlay for capital investments, focus on localisation and improved purchasing power of consumers presents the auto industry with an opportunity to grow at a sustainable pace Specifically, the EV ecosystem is likely to benefit from the measures Some of the key budgetary proposals around electrification include the extension of customs duty exemption for the import of capital goods and machinery required for manufacturing of lithium-ion cells for batteries used in EVs reduction in duty rates for import of cells, viability gap funding for battery energy storage system projects with a capacity of 4,000 MWh, doubling of budgetary allocation for Faster Adoption and Manufacturing of Electric vehicles (FAME) scheme While there are a few misses, like rationalization of GST rates, the extension of the FAMEII scheme, etc , the budgetary proposals are expected to boost domestic manufacturing, and domestic value addition and make EVs more competitive on a sustainable note

Other key headwinds constraining the faster penetration include the absence of favourable EV financing terms, conducive policies around the battery ecosystem challenges towards battery infrastructure, etc On the financing part, high-interest rates, limited financing options, and lower loan-to-value ratios are key deterrents as the lending environment perceives risks around technology obsolescence and lack of an established secondhand market (making it difficult to estimate the residual value) On the battery ecosystem, the manufacturing operations in India are presently limited to the assembly of battery packs, and OEMs import battery cells Battery manufacturers face challenges around the establishment of battery cell manufacturing ecosystem, namely high capital costs, lack of visibility over stable raw material supply, technical capabilities, etc To achieve healthy EV penetration, the expansion of charging infrastructure is critical Though India lags behind its global peers in EV charging infrastructure penetration, the policy measures around dedicated outlay under the FAME scheme, simplified land and electricity procurement guidelines, and subsidized electricity procurement tariffs for EV charging stations are key positives The policies aim to proactively promote more EV charging stations, with a sizeable part of the population expected to have charging infra access in the next 3-5 years

Overall, amidst the headwinds, the demand for EVs remains strong, which, coupled with the favourable policy measures of the government and the preparedness of industry incumbents, shall transcend electrification in the country