With govt so zealous about EVs, will the new tax sops spur their adoption?

Start-ups see a boost in demand for EVs with policy backing, but ground realities are different

Electric vehicles are set to become the flavour of the season, if they haven't already. But concerns loom over whether or not the industry will be able to meet the government’s ambitious target of converting 15 per cent of the vehicles on the country's roads to electric in next five years.

In the Union Budget, presented in the Parliament last Friday, the government lined up a slew of incentives to promote their adoption, as India aims to become an electric vehicle hub. 

The Centre has announced a subsidy of Rs 1.5 lakh on loans taken to buy EVs, customs duty exemption on imported lithium–ion batteries and other incentives for makers of components such as charging and battery swapping apparatus. Goods and services tax (GST) on EVs is proposed to be reduced to 5 per cent from 12 per cent, which is set to make them cheaper. 

The budget announcements closely follow the government overhauling the biggest electric vehicle promotion scheme.

In February, the Centre approved an outlay of Rs 10,000 crore spread over three years on subsidies for electric and hybrid vehicles, covering buses, cars, three-wheelers and two-wheelers. Under the scheme, called Faster Adoption and Manufacture of Electric Vehicles (FAME) II, EVs and hybrids would be exempt from road tax and registration charges. The earlier FAME-I scheme, rolled out in 2015, had an outlay of Rs 895 crore.

Industry participants such as Mahindra and Mahindra (M&M) and Tata Motors lauded the tax soaps, saying the incentives would fast-track EV adoption. But a closer look at the current situation suggests that the Centre, if not the industry, may be jumping the gun on how sooner EVs would become mainstream in the given time-frame.

Firstly, only 759,600 EV units were sold in the year ended March 31, 2019, according to Society of Indian Automobile Manufacturers (SIAM). Of these, 630,000 were commercial three-wheelers, commonly known as e-rickshaws. 

The fact that only 129,600 units (two-wheelers: 126,000; cars: 3,600) were sold in the passenger vehicles segment — a mere 3.8 per cent of all passenger vehicles sold in FY19 — goes to show a tepid consumer response for e-vehicles. 

A major reason behind this is the lack of public charging infrastructure for EVs.

No major automobile or power, or even oil marketing player has come forward to create large-scale charging network, akin to the network of petrol pumps, partly because some feel the demand will not justify the initial cost of investment in the near-term, said a leading auto analyst, requesting anonymity. 

Combine this with lower running range of EVs, typically a few hundred kilometers, make EVs a non-starters for people who use their vehicles as their primary medium of commute.

Start-ups have taken on the baton. Hero-funded electric scooter start-up Ather has set up some 30 charging points at housing societies, malls and social hotspots across Bengaluru, and is now doing the same in Chennai. 

Mobility giant Ola, through its subsidiary Ola Electric, is also setting up charging stations across Nagpur, among other cities. Ola Electric, which recently received funding from Softbank, is a larger, more holistic EV business. The company is testing a number of business models to mainstream EVs by bringing together auto makers, enterprise fleet users, and customers. With tie-ups with M&M, Hyundai and Kia (the latter two are its investors), the firm aims to bring a million EVs to the fore by 2021, through various tailored solutions. 

In 2017, the government had set a target for all new vehicles to be electric by 2030, a demand industry players thought was too ambitious. Critics felt adequate supporting infrastructure — supply of cheap batteries and charging points — would not be ready by this point. The transport ministry later scaled back that target to EVs making up 15 percent of vehicle sales in five years.

The Centre has also asked cab aggregators Ola and Uber to electrify 40 per cent of their fleets by 2026, a news agency reported last month.

Experts said the singular focus on EVs has generated the necessary hype required to create an industry, but it requires the participation of the private sector in equal measure to take it to the next level.