Electric Vehicle - The biggest revolution of 21st Century | What is the future of Electric vehicles in India?

Over the past 200 years, the world has witnessed some amazing transformations. And talking about transformation, one industry that has revolutionized the modern world is Automobile.

It all started in the year 1901 when Mercedes received the credit of being the 1st modern motorcar. Before that, the major form of transportation was horse. Later, Mr Henry Ford innovated the mass production technique for car manufacturing. Since then, the US, Germany and Japan have been the biggest players in Automobile industry. In just 100 years, the car industry has innovated leaps and bounds. But, that was not the end!

The 19th century cars used an “Internal Combustion Engine” or ICT that required petrol or diesel. But there was an alternate technology which used “electricity” powered by a battery. Although, due to many reasons, electric cars never became mainstream in the 19th century. Until, Tesla introduced its car “Roadster” in 2008.

With that, Tesla began a new revolution in Automobile industry. This could also be called as one of the biggest revolutions of the 21st century. I am talking about the rise of the Electric Vehicle industry.

This is the 1st part of the article where I have explored the global EV industry - current state of EV market, future growth prospects and key players in global EV industry.
Then I have analyzed the Indian EV market - The current state of EV market in India, major challenges, key initiatives to overcome the challenges and the future growth prospects.
In the 2nd part of the article, I have analyzed the Key players in Indian EV market and their growth prospects. So lets get started!

Global EV market

After the US, Japan and Germany dominated the petrol/diesel car market all over the world, everyone is in a race to capture the Electric vehicle market to rule the 21st century automobile industry.
If we look at the current state of electric car sales globally, the total sale of electric cars in FY19 stood at 2.3 Million units. This number was in the few thousands in 2013. So within 7 years, the electric vehicle sales have grown multiple times.

In Spite of such huge growth, only 2.5% of the world’s passenger vehicles run on electricity. So you can imagine the kind of growth prospects all over the world.

Major Global Markets

There are 3 major global markets that represent 94% of total EV sales: It is US, Europe and China.

If I ask you, which is the biggest global market of EV, you would probably answer US, right?

Well, you would be surprised to know that China is the biggest global market of EV all over the world with around 1.2 Million units of EV sold in FY19 which is almost half of total EV sales all over the world. It is followed with Europe with 0.6 million EV sales and the US is at 3rd position with 0.3 million EV sales.

In terms of market share, EV in China accounts for just 5% of total vehicles in FY19, EV in Europe has 3% of total market share and the US EV market contributes 2% in total market share. In other words, we can say that it is just the beginning of the EV market.

Future Growth Prospects:

As per report from McKinsey, the EV market is going to explode in the next 10 years.

EV market in China is expected to rise from 7% in 2020 to 37%-52% by 2030. European market is expected to increase from 7% in 2020 to 33%-44% by 2030 and the US market is expected to increase from 3% in 2020 to 17%-36% by 2030.
It means, in the next 10 years, China market is expected to grow around 5-7 times, European market is expected to grow 5-6 times and US market is expected to grow 6-12 times.

That is just crazy growth numbers!

Now let us understand the key growth drivers in global market:

  • Government policies: Governments have created policies regarding Co2 emission limits and encouraging car manufacturers to produce more fuel-efficient vehicles.
  • Incentivisation: Government is Incentivising EV purchase with subsidies, tax break and various other monetary incentives.
  • Charging stations: One of the major reasons for growth in the US, Europe and China is the set up of charging stations by the government as well as private players. At the end of 2019, there were about 7.3 million chargers worldwide. Out of this, 6.5 million chargers were private.
Key Players:

The global electric vehicle market is dominated by major players such as Tesla (US), BYD (China), BMW and Volkswagen (Germany), and Nissan (Japan).
Tesla captures around 28% of total EV market in the 1st half of 2020. There is high consumer demand for Tesla's cars due to their innovative technology, modern design, and high performance.
It is followed with Nissan and Volkswagen with around 10% market share each and then BYD with around 7% of total market share.

EV Market in India

EV represent less than 1% of the total automobile market in India. India is predominantly a 2-wheeler market with more than 80 per cent of ICE sales coming from 2 wheelers. The penetration of EVs in the four-wheelers (4W) segment has remained extremely low at ~0.1 per cent.

Major Challenges and Key Initiatives:

  • High prices: At the end of the day, cost would be a key parameter for EV adoption in India. In order to address this challenge, the central government’s (Faster Adoption and Manufacturing of Hybrid and EV) FAME policy is offering monetary incentives to customers which would reduce the purchase price of EVs and bridge the price differential between EVs and ICE vehicles. Under the FAME II policy, the government has announced a total incentive of Rs 10,000 Cr between the period of FY20-22. Apart from this, there are various other incentives like road tax and registration fee exemption, etc.
  • As you can see in the image, in terms of upfront cost, 2w and 3w are already competitive. However, 4w personal and comercial vehicle cost is almost 2-2.5 times. If you look at the expected time for total cost of ownership with subsidy, 2w and 3w are already at par with ICE. However 4w would passenger car would take 2025 to be at par with ICE cost of ownership. Without the subsidy, 4w personal car would take another 10 years to be at par with ICT cost of ownership.
  • Lack of options in EV segments: As of now, there are limited options in EV category in India. State governments are incentivising companies to attract investment in the EV sector. Government has also kept the GST on EV and EV charger to 5%.
  • Underdeveloped ecosystem of battery production and charging station: For a large scale EV adoption, it is very critical to build an ecosystem of battery industries and charging infrastructure. (Screenshot)For example, Currently, lithium ion battery cell production hubs are primarily located in China, US (North America), Europe (Western), Japan and South Korea. Indian government wants to promote manufacturing of EVs in India, with plans to build Tesla-style giga factories and develop a homegrown battery manufacturing ecosystem as well as a network of charging stations. The Indian Space Research Organization (ISRO) has transferred its in-house lithium ion technology at a nominal fee of INR1 Cr to 10 Indian industries for commercial production. This move is expected to lead to the establishment of lithium-ion cell production facilities for indigenous EVs.Indian government recently sanctioned 2636 (public) charging stations in 62 cities. Out of these, 1633 charging stations are expected to be fast charging stations, and 1003 slow charging stations. With this, ~20,000 charging points are expected to be installed across selected cities.
Future Growth Prospects:

Policymakers in India have been actively pushing. EV adoption in recent years. Government think-tank NITI Aayog has specified that Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAMEII) and other policies supporting electric mobility are expected to push EV sales penetration to 30 per cent for private cars, 70 per cent for commercial cars, 40 per cent for buses and 80 per cent for two wheelers (2Ws) and three wheelers (3Ws) by 2030.

Based on an analysis of key enablers for EVs, KPMG in India expects 25 to 35 per cent 2W penetration, and 65 to 75 per cent in 3Ws by 2030. However, 4W passenger vehicle (PV) electrification is expected to lag, with 10 to 15 per cent penetration in the personal segment and 20 to 30 per cent in the commercial one by 2030. About 10 to 12 per cent of the overall market for buses is expected to be electrified by 2030.

Clearly, there is a bright future prospect for EV in India!

With this, we have come to the end of part 1 of the article.

PS: If you want to learn every aspect of fundamental analysis of stock and other important concepts of personal finance, you can explore my video course on "Everything about money management".

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