The EV space in India has been charging up!

India's top, automakers are pouring in money into the EV space. Suzuki motor corporation will be investing 10,000 crore. There's about 3000-4000 crore investment announced by Hyundai Motor. India Tata Motors has committed two billion dollars which is about 15,000 crore investment. Further 3,000 crore investment coming in, from Mahindra and Mahindra. Kiya Motors will be piggybacking on the investments of Hyundai Motoring and just top five passengers working makers will be investing close to five billion dollars in EVs in the coming three to five years.

So the Indian EV market is slated to grow at a compounded rate of 90% and touch 15 billion dollars by 2030, according to industry estimates.

Why this excitement and frenzy now? Well, clearly the biggest reasons are the government's deep targets on sustainability and its massive push towards cleaner future. Transport Companies, have realised, that India is now ready to take the big leap into the EV space or is it? Well challenges, loom large, like, fluctuating global prices of batteries.

And the fact that we are far from being self-sufficient, in their production, inadequate, charging points on the road, weak power grids, and all this. When car makers are grappling with massive margin and cost pressures on their existing businesses. Despite all this,  is 2022 going to be the cusp of maturity for the EV business in India?

It is clearly now about long-term survival that you need to be in this electrification race. And, and that's the reason why you are seeing such significant announcements being made. And what has really happened is also the convergence of all forces coming together. The central government is offering massive incentive to invest for clean a vehicles that has brought in huge moolah against target of generating investment of 42,500 crore, the government was able to generate close to 75,000 crore of investment under.

So, clearly it's all coming together. I mean, just top five passenger-makers waking makers will be investing close to five billion dollars in EVs in the coming three to five years. So, clearly the the commitment is being made. The foundation is being set. Now, for what is going to be a long marathon going ahead, the ecosystem of vendors and start of fraternities also, chipping in with localisation of critical parts including setting up of electric vehicle infrastructure.

So this this I mean there's lot happening and apart from cars as well. The low hanging fruit is two wheelers and three wheelers, even in two wheeler space, close to three to four billion dollars have been committed by various players including the startup. So clearly, it seems to me that 21 22 companies, maybe.

As for Tesla, it may appear to be little too early for Tesla to commit huge investment in India. But then one may say they may be little to myopic in their vision to discount, the long-term potential it was speculated that government of India wants Tesla to show its commitment to India. And it was asking if not for investment in plant at least they should try and source parts in India which has been proven around the world, there it there appears to be a frenzied activity that, but it's still a big question.

Wether Tesla will invest in India, because designing and developing products specifically for India with its ground clearance. It'll call for a huge amount of complication and it doesn't appear so that we are going to hear anything significant in the short term. 

Well, it's clear that you're not going to see one specific power transmission, multiple powertrain s will be dominating the market. In fact, consumer will have choice right from petrol. Diesel, biofuel, ethanol, CNG, hybrids and electric as well. At the end of the day, with the rising fuel prices you will be going to see your vehicle getting electrified in some form or the other, but that's an extra cost in a best case scenario.

The EV penetration at best maybe 30% by the end of the decade, which may mean about say, probably in a market of five million about 1.5 million cars. However, for two wheelers, it may be a lot higher. The number could be 20 to 30% as early as 2627, so that would be close to four to five million two wheelers.

Now that said there will still be millions of two wheelers and millions of cars, which will still be run on internal combustion engines. So cleaner options there and when a 5 million market 3.5 million cars, it's as good as the number of cars that we sell right now. Those many cars are still going to be running on into internal combustion engine and hence you need multiple technology options rather than restricting oneself to just completely transitioning to pure electric inner way.

Because the infrastructure, the grades the cost may actually not match up. But what I feel is that the inflection point in terms of the number of models that are likely to kind of start being launched in a frenzy, maybe somewhere around 2025 2026, when you start seeing players like Maruti Suzuki Hyundai Kia, the leaders actually coming in, with their own offering Tata Motors, clearly has a lead now and by 25, they've committed about 10 models in the marketplace. So, clearly around 2026, I mean, my guess is close to between 25 to 27. You may see about 30 quick models in the Indian market across price points, right? From a Maruti Suzuki to an MG. Only luxury car makers are quite active and they are reducing models of the model.

So clearly you gonna see frenzied activity when it comes to new model launches. But again the penetration levels may not be that high. Given the pricing factor is still at a significant price. Premium to a conventional internal combustion engine vehicles. 

And what is he difference between say the electric variant of an existing model? For example, a Tata nexon already got and vehicles that will come up on a completely new platform. Say that Tata's Gen 3 platform. For instance, So the basic fundamentals of any electric vehicle when it comes to performance and range is that it needs to be lightweight. Now, lightweighting is something, which the industry anyway, is doing overall, because it makes the efficiency go up even for an ice vehicle. But when you adapt an ice vehicle for an electric vehicle platform, based on the as much you can do with respect to bringing the weight of the vehicle down. So, to bring it to the market as earlier as possible. The easiest way to do is to adapt your existing ice vehicle platforms into electric. It's easy, it is faster, but it does not give you the entire benefit of what an electric powertrain can do. So if you build it from scratch, it will be a little more expensive.

It'll take a little more time, but for the consumer and also, for the environment at large, it will be more efficient. It also have a larger range. So if we take Tata motors, for example, the next one is an ice vehicle platform and they adapted it for electric vehicles.

And we have the next on EV, It has a ARIA certified range of 312 kilometres with the average, the concept that they have showcased, which will be built from scratch for electric vehicles. To start off, you will have a 500 kilometre range and when it comes to EVs rang anxiety is a thing, right? I mean, we've seen it mentioned in terms of scooters, a lot, so I'm sure it'll sort of transition to vehicles, as well as I mean, as far as the consumer is concerned, it is, it is, it is one of the most important aspects for the consumer when he thinks about buying an electric vehicle because practically you may not be using a vehicle for more than maybe 30, kilometres every day.

But there's always a chance that you want to go out of town. You want to go on weekend drives and then you will need a range of about 400 500 kilometres. Now if an electric vehicle on full charge does not guarantee you you that then it puts question marks and you do not want to be out on the road constantly looking at your fuel gauge, you don't do it right now because every two kilometres you will have one few station on a highway but in an electric vehicle for a fact that you will not want, you will not get a charging station.

And so that puts in doubts. So for a vehicle to become an appropriate, what passenger vehicles here, for a vehicle to become practical. And for somebody to get convinced, you will need to have a higher range or higher range, and better efficiency, you will need to build it from scratch.

Like, Tata is trying to do with Avinya and more manufacturers will do with their own vehicles. But if you want to rush to the market right now, you will have to adapt your eyes vehicles and make it into electric, but the range will be low.

Okay, Let's take two other segments, one, which is being in the news for all the wrong reasons. 

For example, I want to know why aren't more companies announcing investment plans for electric motorcycles isn't for instance, the say the electric variant of a splendour critical to make this segment more more mainstream.

I mean, after all motorcycles do constitute 66% of the two wheeler segment, right? Sumantha. So this is a very intriguing question and I, in fact, data story on the curious case of the missing electric motorcycle, a few months back and ironically, a company like Bajaj Auto, which only makes motorcycles in the ice domain decided to enter into the electric vehicle space with an electric scooter, the chetak.

So everybody seems to be sold out on electric scooters. Nobody seems to be betting big on electric motorcycles right now as whoever I've spoken to. I have all this got divided opinions and I will break my answer into two parts. One is why so many electric scooters right now.

The answer is very simple because China is very big on electric scooters. They don't have too many electric motorcycles. So the ecosystem is ready for electric scooters, there. It's very easy for any company. And these are largely startups that have come in in the electric tube with a space.

They bring in that technology which is available in China and they try to replicate the same model Since not too many. Electric motorcycles are available. So it's not so many are present. A scooter is most reused for travelling within the city. A motorcycle on the other hand is most stylish.

It is more performance-oriented, and it is used in some parts to go from one city to the next, so it needs a bigger battery. It needs more styling. It needs higher performance which means the cost will be higher When or splendour electric be possible with the current rates of battery pack prices.

Maybe not but is electric Activa possible which is the largest selling ice scooter? Absolutely. And we have seen scooters from Hero Electric and Okinawa come in at around the same range. Ola has more performance and it is also not atrociously high. Highly priced compared to the Activa. So it is possible to bring in an electric scooter almost at the parity level of the largest scaling scooter, but as of now, it is not so much possible to bring in an electric motorcycle at the same price as the splendour right, okay?

Coming to the next segment which is electric commercial vehicles. Now, our transport minister, Nitin Gadkari wants to ultimately shift to a scenario. Wherein, 100% of public transport will be electric. And of course, Tata Motors is leading the way by recently winning the 5,000 crore rupees contract for electric buses, which is the biggest contract, I guess.

In India, On the other hand, the segment, which is really made. The deepest penetration into the EV space, is the three-wheeler commercial vehicles. How do you see the dynamics playing out in this space First? How long before we shift to a hundred percent EV public transport scenario? And is it at all practical practicable potentially possible? And also do we see heavy trucks in the EV space, in the next few years? Well is it's a wishful thinking, hundred percent penetration appears to be more of a vision. But clearly on the commercial vehicle front, the vehicle makers have cracked a business case when it comes to load and people movement there is value in carrying goods, especially for the last mile with a defined payload and a defined range.

Are you going to see large logistic companies and transport operators, moving to electrification. I mentioned about 5,000 crore order Tata Motors.

So there are significant opportunities when it comes to tier 1, tier 2, tier 3 cities, where you are going to see local state transport undertakings floating their own tenders, going ahead. So clearly you go to see a significant sh when it comes to electrification of buses. However, it may take years before we start seeing an individual truck or a bus buyer, really start acquiring EVs because till the price is significantly at a premium, and you spoke specifically about heavy trucks barring specific, areas of mines or ports, where distances are defined again you may start seeing electric trucks.

So as far as vision is concerned to move towards hundred percent public transport. It's all a fantastic. And there are significant steps taken in that direction and one can clearly see the movement happening there. And probably buses may actually lead the penetration when it comes to electrification followed by three wheelers, followed by two wheelers and cars.

Till 2024 there is the productivity linked incentive scheme covers, electric vehicles, and advanced chemistry cell batteries or batteries. And that's supposed to make batteries for EVs cheaper, but is the unwritten unsaid pressure on companies too much to invest, billions of dollars and technology and manpower in a new segment at a time?

When they're already facing pressures on their existing vehicle business, that's the ICE vehicles. So again, anybody there are two sides to this one is that there is no denying that the legacy, automakers, the incumbents they have not been very proactive when it comes to launching electric vehicles, They have been hesitant.

It was needed from the side of the government to push them and they have pushed them fairly well. When does a push becomes too much? It is subjective but yes, it does. Look like the industry is being pushed far too much because we moved from BS4 to BS6 recently, which ended a lot of investments.

There are cafe to norms on emissions which are being tightened with the passage of time. Government is also talking about ethanol, we are talking about CNG, we are also talking about methanol and in the backdrop of it, all the government is very clear that we want to go towards electric.

So now all of that at the same time will put a lot of pressure on the industry. So let's talk a little more about the challenges of this business. So the costs of lithium ion batteries. For instance, they plunged in 2021, right? But now the prices are on the rise again that will obviously impact margins and then increase the prices of those vehicles. Also, what about the basics? Like charging infrastructure. How do you see these challenges playing out in the next few years? And how will these be solved? Yeah, I mean yes, rising battery cost is definitely a challenge.

It may actually slow down the adoption fear, some of the industry players, however, many also feel that it is just a speed bump along the way, once the semiconductor crisis eases, one will start seeing some semblance of easing of prices, when it comes to the lithium ion batteries. We've seen them sustain in these over the last two years and we just started having an impact especially at a with a lower ticket price model, like a two wheeler.

However, it is not seen that significantly in the passenger vehicle segment where as the ability to absorb rising prices a lot more. However, having said that in the future beyond lithium ion, there are multiple different chemistries that are being explored by global multinational corporations, right from solid state aluminium air.

So you go to see, definitely multiple alternatives emerging in the horizon, but that's still a space, which is being explored right now. And we are yet to see a solid alternative to lithium and the prices should come down eventually when it comes to lithium ion batteries, as far as other challenges are concerned, I feel the charging infrastructure, it is definitely coming up and I feel just like buses.

I do, expect government of India to come out with a big tender for charging stations that will ensure this proper distribution of charging station across the country, but more than the charging infrastructure. My biggest fear or the biggest challenge, I think the country may face is on upgrading the grids.

We have our legacy and outdated grids. I'm not sure whether the existing grids will be able to withstand several dozen vehicles parked charging at the same time, it'll choke the grids. It's a big question mark. It's a big fear according to me, it's something that will play out as as time goes on for government to also upgrade the existing dated grids to modern newer grids requires real estates.

Now what happens in a city like Mumbai, Delhi, Bangalore where real estate is at the premium. It is a very difficult problem to also solve because most state distribution companies, they are bleeding, they are in red and you need to support them with subsidies and incentives and tools from the government.

How can they invest billions of dollars to upgrade their system? It is something that needs to be answered. But once again on all of these issues, technology has answers. So it's not like we are groping around in the dark looking for solutions. Just that, how do you execute? And implement them is the real real worry.

Okay. So, how long do you think before companies in India also start making money on this segment? Just to you give you a timeline? I think it's all about economy is a scale. 

I think they claim that in some models, they do make money. However, there's a significant amount of capex that is being put into the business. So it'll take a while for break-even points to reach. So everything is going to depend on the penetration and the other Joker in the pack also could be from, where do you source your lithium or for, where do you source some of these materials?

Localisation is a big element? And I think that aspect is being addressed by government of India's production linked Incentive scheme, where people are actually spending huge amount of money localisation of cells here, there are semiconductors, which are going to be localised here as well. 

Did Tesla start making money in its first year or in the first five years. No, it did not. It took them a good, almost, a decade before they started making any kind of an EBITA positive operating income. They are still spending big time. So in outright terms, net profitability is something that they're still chasing but it is possible to make money.

But let's make a clear distinction between how the automotive industry has operated in the last hundred plus years that we have seen the internal combustion engine. They were basically two power trains petrol and diesel. There was nothing else in electric vehicles. The only constant would be that the vehicles of the future will be powered by electricity.

So the next few years and next few decades, we will not see the kind of stability and consistency that we are used to, in the internal combustion engine era. So the variables will bring in a lot of confusion and kind of an uncertainty as to how to make money.

But definitely, once it all stabilises once we know for a fact that technology has kind of tapered off, there is money to be made, and there could be new companies that come in. Some of the old companies who do not adapt fairly well enough, they will die out, but there will be a lot of money at the end of the day. I just feel that we've seen this emergence of global climate impact fund now has Tata Motors, being able to generate 9 billion dollars of valuation.

And inviting private equity fundamental fund the cleaner vehicle. So it just appears that all of a sudden, there are many private equity funds and global impact funds. What actually queueing up and that in a way, will actually alter the way. The break-even points in electric vehicle, businesses are defined, you know, it's amazing to see out of nowhere.

So, I mean, I think this is a very fascinating story, which is unfolding in India. India does seem to be on the inflection point of the electric vehicle, story In a few years, almost every major automaker in the country, will have new electric vehicle models to sell to you.

Thank you.

Courtesy: various data points from Economic Times.