Why India is on track to become an electric vehicle manufacturing hub​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​

The government has set out a road map to boost the EV sector with tax breaks for buyers and subsidies

A technician briefs during during the launch of Hyundai's India's first electric SUV 'KONA' at the Secretariat Park in Chennai on July 24, 2019. (Photo by ARUN SANKAR / AFP)
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The Indian government's vision for one of its cities to become the "Detroit of electric vehicles" illustrates the country's ambitions to become a global hub for the advanced car manufacturing industry.

It is a big initiative for India, where the electric vehicle sector is still very nascent and lagging behind markets such as China. High costs and a lack of charging points prove major deterrents for buyers of electric cars, analysts say.

The government is aggressively putting in place a road map to boost electric vehicle sales and manufacturing in the country, including tax breaks for buyers and planned subsidies. The 100 billion rupees (Dh5.33bn) earmarked for the sector for the next three years is expected to accelerate growth.

The Indian government's vision to reduce India's oil import bill, reduce pollution and promote sustainable mobility, has given electric mobility a big push.

“The automobile industry is at the cusp of a revolution with adoption of cleaner vehicles – electric and plug-in hybrid – over petrol and diesel vehicles,” says Hitesh Goel, an automobile analyst at Kotak Institutional Equities based in Mumbai. “We believe while China, Europe and the US will be faster to adopt electric vehicles, the Indian market will also embrace these vehicles.”

Although the numbers are relatively small, they are already gathering pace. In the financial year to March 2019, 3,600 electric cars were sold in India compared to 1,200 the previous year, while 126,000 electric motorcycles were sold, up from 54,800 in the same period previously, according to the Society of Manufacturers of Electric Vehicles.

By comparison, 1.2 million electric vehicles were sold in China in 2018, the world’s largest market for EVs, according to data from ZSW, a research company in Germany. Beijing has actively promoted electric car adoption by offering subsidies and incentives for both manufactures and consumers.

India now appears to be following a similar path.

“The Indian government’s vision to reduce India’s oil import bill, reduce pollution and promote sustainable mobility, has given electric mobility a big push,” says Mahesh Babu, the chief executive of Mahindra Electric, part of the Indian conglomerate Mahindra and one of the biggest manufacturers of EVs in the country.

Mr Babu says Mahindra’s EV sales have shot up by 2.5 times to 10,276 vehicles during the financial year to March, compared with the previous year.

India's Tata Motors, which owns Jaguar Land Rover, is another company expanding in the electric vehicle sector. Tata won a government contract to supply 10,000 electric cars and the car maker has plans to roll out several models for personal buyers over the coming years.

The country has set a target for 30 per cent of its vehicles on the road being electric by 2030, after scaling back an initial aim set in 2017 of having 100 per cent EVs by 2030 because it was deemed unrealistic.

Adding to the urgency to adopt electric vehicles are pollution problems in India, with traffic emissions a major factor. Twenty-two of the world’s 30 most polluted cities are in India, according to a report by Greenpeace.

To add to its efforts to drive the growth of EV use and manufacturing in India, Prime Minister Narendra Modi's government, in its annual budget this month, announced a slew of measures aimed at boosting the sector.

“Considering our large consumer base, we envision India as a global hub of manufacturing of electric vehicles,” said Nirmala Sitharaman, India’s Finance Minister. Measures include income tax rebates of an additional 150,000 rupees on the interest on loans taken out by customers to purchase EVs, taking the total potential benefits on loans on EVs up to 250,000 rupees.

New Delhi is also looking at reducing the goods and services tax on EVs to 5 per cent from 12 per cent.

Ms Sitharaman announced the second phase of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, with a budget of 100bn rupees over three years, had started on April 1.

“The main objective of the scheme is to encourage faster adoption of electric vehicles by way of offering upfront incentives on the purchase of electric vehicles and also by establishing the necessary charging infrastructure for electric vehicles,” she said.

These plans will be major factors in a “steady improvement in electric vehicle adoption”, says Mr Goel.

In particular, developing the necessary infrastructure will be key to the expansion of the electric car industry.

A lack of charging points in the country means potential buyers are put off by the uncertainty of whether they will be able to recharge their car on a long journey – referred to as "range anxiety".

“For electric vehicles to see adoption in public transport like taxis and buses, robust public charging infrastructure needs to be set up,” says Hetal Gandhi, the director at Crisil Research, which is part of Standard & Poor’s.

As of last year, despite being a country of 1.3 billion people, India only had 352 publicly accessible chargers compared to about 275,000 charging points in China, according to the International Energy Agency.

But Ms Gandhi says India aims to have at least one charging station in each 3km by 3km area in its biggest cities.

The cost of EVs, however, is another hurdle for buyers, with entry-level electric car models in India about 50 per cent more expensive than basic petrol-fuelled cars.

The battery makes up the majority of the outlay and authorities are working on bringing costs down.

“The need to import electric vehicle battery and cells tends to increase the battery cost, which in turn increases the vehicle price,” says Ms Gandhi.

“The government has increased efforts [to address this] by providing various incentives for manufacturers to promote manufacturing and assembly of battery packs.”

One start-up that is revving up to tap the EV market in India is Tork Motors. The electric motorcycle manufacturing company, based in the city of Pune in western India, plans to start selling its motorbikes this year.

“At the moment we are refining our electric motorcycle T6X to make it ready for production and sale and are currently in the final stages of testing the motorcycle,” says Kapil Shelke, the chief executive and founder of Tork Motors. “We’ll begin by selling our product in Pune and then expand to other cities like Bangalore, Delhi, Ahmedabad.”

He considers the steps being taken by the government as encouraging.

“This definitely works in our favour,” he says.

Mr Goel at Kotak warns that “profitability in electric vehicles will likely be negative in the initial few years due to a lack of economies of scale”.

The longer term benefits for companies, however, and India’s economy and environment, could be substantial.

New Delhi said going electric could help India reduce its energy demand by 64 per cent and carbon emissions by 37 per cent in 2030, as well as leading to savings of close to 4 trillion rupees on petrol and diesel costs.

In another potential boost for the sector, Elon Musk confirmed last week in an interaction with students from IIT Madras plans for his electric car company Tesla to enter India next year, reported Indian media.

There may be a long road ahead for the electric vehicles sector in India, but it appears to be gradually gaining momentum.