When Nitin Gadkari painted his picture of the future of Indian auto, it looked exciting and also a tad ambitious. Gadkari expects Electric Vehicles (EV) to constitute 15% of Indian auto sector by 2023 and 100% by 2033. While the numbers may sound a bit lofty, his thinking is surely in line with what the world is thinking about. Here is what you need to know.
Shift to EVs will happen
Even the most fanatical oil fan has now started believing in the EV story. If you consider the projections of Wood Mackenzie, there are different scenarios for EVs by 2035. For example, in a best case scenario, EVs could constitute nearly 85% of all incremental vehicle sales in the world and the reality could be much lower. Even assuming that most of the incremental sales would come from electric cars; it will still leave a lot of fossil fuel driven cars on the road till about 2050. That is a long time away. There is also the projection of others like the Exxon and the OPEC which put the EV sales at 5% in a best case scenario over the next 15 years. Which direction we end up in will largely depend on the price of oil. It has been seen that when oil prices are at the lower end of the spectrum, the incentive for nations and companies to invest in EV capacity is quite limited. It is in the interest of the EV segment that oil prices stay high so that the momentum towards EVs is not lost.
What about infrastructure
That is the million dollar question. Making cars is not only about the capacity to make cars but also the infrastructure to sustain such cars. Let us first look at the costing. To be fair, the price of the Lithium batteries has been falling sharply. From $1200/KWH in 2008 to about $200 in 2018, is good but the real challenge to EV profits will be getting this price of Lithium to around $80/KWH. That is when the entire EV concept becomes feasible in a big way. The second challenge is the support infrastructure in terms of maintenance, repairs and other allied services. That infrastructure is today entirely tilted towards petrol and diesel cars. Unless that also shifts along, the real shift to EVs cannot happen.
An opportunity for India…
In a way, Nitin Gadkari is right in the sense that India needs to be ahead of the curve in this challenge. As of date the EVs made by Tata Motors and M&M are way too expensive to have a mass market. At least, not in a price sensitive market like India. China consumes more EVs today than the US and Europe put together. That is the lesson. For the next big growth story in the auto segment, India needs to be ahead of the curve. Targets for EVs may be ambitious but even if we get to the half-way mark eventually, it would be a case of a job well executed!