India: Counterpoint to Global Electrification

Last week we reported on the headway electric vehicles are making in the Netherlands, framing the situation as idyllic for EVs. Less picturesque for plug-in sales is India — a nation that has similarly attempted to encourage the proliferation of electric cars, but with unimpressive results. As it turns out, India makes a stellar counterpoint for worldwide electrification.

Based on the success EVs have seen over the last few years, you’d think the government was asking everyone to start eating hamburgers. Despite having a population of 1.34 billion people, with more of them becoming drivers every day, just 8,000 EVs have been sold in the nation over the last six years.

India’s first problem is a populace that lacks the means to buy these vehicles. Examining the summer launch of Hyundai’s Kona Electric, Bloomberg reported that it still costs roughly the same there as it does here. At $35,000, that makes the Kona far too expensive for most Indians who earn an average of just $2,000 a year. The manufacturer only delivered 130 examples through August, with little prospect for better in the months to come.

Most vehicles sold in the region don’t go for more than $9,000, with some of the country’s most popular models retailing for far less. For example, Suzuki’s Alto goes for the U.S. equivalent of $4,050 and happens to be the nation’s best-selling automobile.

“The affordability of electric cars in India is just not there,” said R.C. Bhargava, chairman of Maruti Suzuki India. “I don’t think the government or the car companies expect that in the next two to three years there will be any real buying of electric vehicles.”

From Bloomberg:

The segment still isn’t making meaningful strides more than four years after the government started promoting cleaner vehicles for one of the world’s most-polluted countries. In February, Prime Minister Narendra Modi’s administration committed to spending $1.4 billion on subsidies, infrastructure and publicity.

Maruti [Suzuki] not introducing its first EV until next year. Tata Motors Ltd. and Mahindra & Mahindra Ltd. build some base-level electric cars, yet they have a limited range or are exclusively for government use. The Kona gives Hyundai a first-mover advantage in a market where EVs may comprise 28 [percent] of new vehicle sales by 2040, according to BNEF.

Not only Hyundai sees opportunity in Asia’s third-largest economy. MG Motor, the iconic British carmaker owned by China’s SAIC Motor Corp., and Japan’s Nissan Motor Co. see EVs as a way to expand in the country.

“Somebody has to take the leadership, and it will trickle down,” said Rajeev Chaba, managing director of MG Motor India, which plans to launch an electric SUV by December.

Being first has its advantages, but those rushing into India without a plan are likely to suffer. Despite an overwhelmingly large population, only about 150 million Indian residents can drive. While the potential for growth is inspiring, it’s currently dormant.

Realistically, wages would need to come by a huge margin for people to seriously consider EVs in meaningful volumes. Battery prices would also need to plummet and the country would have to get serious about installing a nationwide charging infrastructure. Bloomberg estimated that India had an estimated 650 charging stations in 2018 vs China’s 456,000 charging points.

The country’s size, roughly 1/3 of the United States, makes deciding where and when to implement charging zones a significant challenge. Locals don’t see a point in installing EV stations when adoption rates are slow and the government is hesitant to spend more money for the same reasons. But without a charging infrastructure, it’s difficult to for consumers to rationalize the purchase of an EV — creating a a feedback loop that might stymie electric adoption indefinitely.

The broader Indian automotive market is also proving to be troublesome. Passenger vehicle registrations plunged as much as 30 percent over the summer, handicapped by tightening emission rules, tax changes, and widespread banking issues. Non-banking finance companies were doing the heavy lifting for vehicle purchases for years, but many now find themselves overburdened. As a result, many lenders have closed up shop or started refusing to entertain automotive or housing loans. This has spooked traditional banks as well, making them similarly hesitant to offer loans deemed high risk.

“There is an imminent crisis in the non-banking financial companies sector,” Injeti Srinivas, India’s corporate affairs secretary, told reporters last May. “There is a credit squeeze, over-leveraging, excessive concentration, and massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster.”

This places a lot of pressure on the Indian government to make these vehicles appetizing to consumers and banks — neither of which are terribly interested right now. While there are a bevy of new incentives coming for EVs (tax breaks, import duty exemptions, etc) most of it goes toward supporting two-wheeled transportation. Similarly concerning is the fact that state-run attempts to embrace electrics as government-use vehicles have also ended in failure.

Energy Efficiency Services Ltd. (EESL), a joint venture of state-run companies responsible for replacing governmental vehicles with EVs, was awarded its first tender in September 2017 for 10,000 vehicles. As of July, agencies had accepted only 1,000 of them. EESL plans on selling the rest to taxi companies.

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