Developing local prowess in EV manufacturing is imperative for domestic value addition and job creation as the Indian auto industry transitions from the erstwhile internal combustion engine (ICE). The COVID-19 led disruptions of existing international supply chain for EV components has provided a crucial opportunity for driving indigenisation in India. Original Equipment Manufacturers (OEMs) – both domestic and international – are looking for alternative supply-chains.
A study by CEEW, titled ‘India’s Electric Vehicle Transition’, found that with 30 per cent EV car sales, India can see a 5.7 per cent increase by 2030 in domestic value addition in car manufacturing, in comparison to a business-as-usual (BAU) scenario. This would require achieving 90 per cent localisation (figure 1), matching that of ICE vehicles manufactured today. Although, if indigenisation was limited, the domestic value addition would be 8 per cent lower than BAU. Certain EV OEMs such as Ather Energy, Okinawa Scooters, Kinetic Green and Mahindra Electric claim to have already achieved significant indigenisation. However, to meet EV penetration levels of 30 per cent sales share or higher in 2030, the manufacturing supply-chain will need further investments into localisation, capacity building, and R&D.
Figure 1. Domestic value addition from EV manufacturing
Source: Soman, Abhinav, Karthik Ganesan, and Harsimran Kaur. 2019. India’s Electric Vehicle Transition: Impact on Auto Industry and Building the EV Ecosystem. New Delhi: Council on Energy, Environment and Water.
Note: ‘EV30-High’ — 90 per cent indigenisation of EV powertrain and battery pack, ‘EV30-Low’ — 50 per cent indigenisation of EV powertrain and 70 per cent indigenisation of battery pack. Battery cells are assumed to be imported in all scenarios.
Investments and scale of demand for EVs are interdependent. Investors need visibility on assured and sustained demand, while demand at scale will require a range of affordable and high quality EV products suited for Indian conditions. This in turn requires investments into local manufacturing. Possible policies to break this deadlock are measures that bring EVs on price parity with ICE in the short-term, till economies of scale are achieved. In addition to the ongoing preferential tax support, the sector needs supply side push in the form of Zero Emission Vehicle mandates and stricter Corporate Average Fuel Efficiency (CAFÉ) norms for CO2 emissions. Enhancing investments can be promoted via production linked incentives along with policies to improve overall ease of doing business.
Beyond supply-side focused interventions, there are several components of the EV ecosystem that can play a role in ramping up EV supply-chain in India such as financing, after-market services, and promoting innovative business models for various customer segments. Business model innovation can bring down costs of acquisition for customers through battery leasing models. Battery swapping technology has already garnered attention, with the government granting permission for sales of vehicles without batteries. Financing for commercial-use EVs, like intermediate public transport and urban freight operations has been constrained although innovative financing mechanisms are starting to change this. These mechanisms are enabled by a combination of digital lending platforms and telematics spearheaded by fintech companies. There are also opportunities towards end-of-life of EVs, such as second-hand market for EV and battery recycling or urban mining. These activities will allow for residual values for EVs to be established further supporting the flow of EV financing.
The recent pandemic-led disruptions have reoriented focus towards indigenising EV manufacturing in India. With the right sequencing of short-term interventions and longer-term policies, an Indian EV ecosystem can be developed, aiding economic recovery, creating jobs, and moving people and goods sustainably.