Gearing up for an Electric Future

INTRODUCTION

The Department-related Parliamentary Standing Committee on Industry (“Committee”) presented its 309th report on Electric and Hybrid Mobility – Prospects and Challenges in Automobile Industry (“Report”) on 6 December 2021. The Report analyses India’s e-mobility situation and various Government initiatives aimed at transitioning the automobile industry from internal combustion engines (“ICEs”) to electric vehicles (“EVs”). The Committee also examined the challenges as well as the proposed reforms to develop the sector. This article aims to summarise the Committee’s findings, after considering the opinions of various stakeholders.

GOVERNMENT  INITIATIVES

As part of the National Electric Mobility Mission Plan 2020, the Indian government introduced the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (“FAME”) scheme in 2015 to support manufacturing of hybrid EVs (“HEVs”) and EVs. Additionally, the Production Linked Incentive (“PLI”) scheme was introduced by the Government in March 2020, to make the manufacturing sector self-sufficient, and cater to market needs. The PLI scheme aims to improve the supply chain for manufacture of EV components by enhancing domestic manufacturing capacity across a range of EV components, strengthening downstream operations, and increasing investments in EV technology.

(i) FASTER ADOPTION & MANUFACTURING OF (HYBRID &) ELECTRIC VEHICLES IN INDIA (FAME)-I

FAME-I was launched in 2015, with an outlay of INR 795 crores, aiming to support market development and manufacturing eco-system for HEVs/EVs. In view of its initial success, the FAME-I scheme was later extended till 31 March, 2019, with an increased outlay of INR 895 crores. The Committee noted that the introduction of FAME-I led to a rise in demand of 2.8 lakhs EVs and HEVs, and that the scheme supported the deployment of 425 electric buses in 9 Indian cities and the sanction of 520 charging stations, of which 392 have been installed as on date.

(ii) FASTER ADOPTION & MANUFACTURING OF (HYBRID &) ELECTRIC VEHICLES IN INDIA (FAME)-II

With the success of FAME-I, the Indian government formulated and launched the scheme’s second phase – FAME-II – on 1 April 2019, with an outlay of INR 10,000 crore over a 3-year period, which was later extended by 2 years, up until March 2024. The FAME-II scheme aims to generate demand for electric mobility and is meant to support the manufacture of 7090 e-buses, 5 lakh 3-wheeler EVs, 55,000 4-wheeler EV passenger cars, and 10,000 2-wheeler EVs in India. With the rising demand for e-mobility, the Ministry of Heavy Industries (“Ministry”) amended FAME-II, announcing a 50% increase in demand incentives from INR 10,000 to INR 15,000 per kWh and 40% increase in the subsidy cap, effectively lowering the average purchase price of EVs even further. This decision would both increase the demand for EVs, and lower manufacturing costs – thereby aligning these costs with that of ICE vehicles.

In its December 2021 report, the Department-related Parliamentary Standing Committee on Industry suggested that the Indian government (i) increase awareness of the benefits of the FAME II scheme; (ii) assess the scheme’s funding requirements; (iii) increase the scope of FAME-II to include funding and grants; and (iv) enhance research and development capabilities for charging infrastructure components, further incentivising manufacturers to enter the market and expand their operations, in the sector.

(iii) PRODUCTION LINKED INCENTIVE (PLI) SCHEME

The outbreak of Covid – 19 resulted in slowdown of the manufacturing sector of the country. In order to boost indigenous production, reduce dependence on single market and imports and related costs, the Government introduced the concept of a PLI scheme. Under PLI scheme, Government promotes domestic manufacturing by providing a package of incentives in the form of tax rebates, subsidies, import and export duty concession, and easier land acquisition terms. The first PLI schemes targeted three key industries – mobile manufacturing and electrical component, pharmaceuticals, and medical device manufacturing. The concept has expanded greatly – with over 14 separate PLI schemes rolled out for a variety of sectors, to boost India’s manufacturing capabilities and encourage export-oriented production.

Presently, the Government has allocated INR 3,46,827 Crore for 14 PLI schemes across various sectors. For the renewable energy and electric mobility sector, the Government has introduced the following relevant PLI schemes:

(a) PLI scheme for the National Programme on Advanced Chemistry Cell (ACC) Battery Storage;

(b) PLI Scheme for Automobile and Auto components; and 

(c) PLI Scheme for the ‘National Programme on High Efficency Soalr PV Modules’.

The combined effect of the PLI schemes on ACC battery storage, and for the automobile industry has been to accelerate the domestic manufacturing of EVs in India. The PLI scheme does not debar domestic manufacturers from procuring incentives under more than one PLI scheme. This incentivises manufacturers and further enables them to take advantage of the opportunities being provided by the Government.

(a) PLI scheme for Advanced Chemistry Cell (ACC) Battery Storage

Lithium-ion batteries are widely used in power portable electronics like mobiles and laptops. Due to their versatility, EVs are heavily reliant on lithium-ion batteries. Insufficient manufacturing infrastructure for lithium ion has resulted in India becoming dependent on the international market for this raw material. 

To localise and incentivise cell manufacturing through capital subsidies, the Government announced the PLI scheme for the manufacture of ACC batteries, with revolutionary storage technologies and new generation battery cells, that convert electric energy into chemical energy and back, when required. With an outlay of INR 18,100 crores over 5 years, the PLI scheme’s initiatives aim to alter India’s EV trajectory. To qualify for the PLI scheme for ACC batteries, manufacturers must set up a production unit with a capacity of at least 5 GWh.

(b) PLI scheme for Automobile and Auto Components (AAC)

To promote and encourage investment in advance automobile and auto component products, the Indian Government introduced the PLI scheme for AAC. Under the scheme, incentives are applicable for sale of advance automobile technology products manufactured in India. The scheme extends to existing automobile companies as well as non-automobile investor companies and intends to overcome cost disabilities for manufacturers of advance automotive technology products, create economies of scale, and build a robust supply chain in areas of automotive technology products.

The scheme has two components namely, the Champion OEM Incentive Scheme (“CIS”) and the Component Champion Incentive Scheme (“CCIS”). The CIS scheme is applicable to EV battery and hydrogen fuel cell vehicles to overcome the cost disabilities faced by Original Equipment Manufacturers (“OEMs”). The CCIS scheme is aimed to identify and incentivize manufacturers of auto-components to achieve global scale operations and become ‘automotive champions’. To qualify for benefits under the AAC scheme, OEMs are required to achieve a global net worth criteria of INR 1000 crores while auto-component manufacturers will be required to achieve INR 500 crores.

While the PLI scheme will accelerate investments in the EV sector, the Ministry has been shortsighted in evaluating the schemes’ effectiveness. Existing OEM and auto-component manufacturers, manufacturing electric components for EVs are at a nascent stage with limited international operations. Most OEMs and auto-component manufacturers would be ineligible to utilise subsidies due to the mandatory net worth criteria as outlined in the schemes above. The Ministry must revisit the specifications and criteria to carve out exceptions for Indian OEMs in the new and alternative energy space, which continue to operate with limited resources.

CHALLENGES

Affordability: High up-front costs and inadequate charging infrastructure decreases consumer demand for EVs. To promote the adoption of EVs, the Government must formulate long term sustainable plans, reduce prices, and provide incentives for scrapping ICE vehicles.

Insufficient charging infrastructure: This has seriously stunted the growth of EVs. The Government must establish robust fast-charging infrastructure with the aid of public-private partnerships. Apart from installing public charging stations at an accelerated pace, the Government should consider a subsidised tariff on the electricity supplied to these charging stations, to further boost the adoption of EVs in India.

Range Anxiety: Range anxiety is the fear that battery life of an EV will not last till completion of a journey. Consumers are suspicious of manufacturers’ claims regarding EV battery life, resulting in lower purchases. Extensive charging infrastructure, combined with robust battery swapping technology, would help in eliminating this skepticism.

Inadequate Awareness: Although the Government initiated a ‘Go Electric’ campaign in February 2021 to educate the public regarding e-mobility, it must also advertise in print and electronic media to highlight the benefits of e-mobility and Government incentives in this regard.

REFORMS

One India One Policy: To standardise the various schemes’ implementation, it is suggested that the Central and the State Governments formulate one policy, providing stakeholders a clear direction to invest and increase EV adoption.

Strengthen R&D: With efficient alternative fuel sources like hydrogen and ethanol, the Government must be prepared to adopt and support all forms of technology for a smoother transition to clean and green mobility.

Financial Stability: To ease availability of financing options, the Government should designate EVs as falling under the priority lending sector, which would incentivise banks to increase lending towards the sector and encourage consumers to purchase EVs.

CONCLUSION

The wide scale adoption of electric mobility would both revolutionise automobile consumption and while simultaneously, drastically decreasing our carbon footprint and reliance on fossil fuels. With more sustainable growth plans, incentive schemes and reforms in place, as highlighted above, we seem to be slowly but surely accelerating towards a cleaner and more sustainable future.

Despite the staggering growth in India’s EV sector, there continues to be a hesitation for adoption of electric mobility. With increased awareness, affordability and robust charging infrastructure, a shift towards electrification of vehicles is inevitable. As the Government embarks on this journey, with a concentrated goal, clear vision and an actionable plan, we strongly believe that India is gearing up for an electric future.

Please reach out to Praveen Raju and Janhavi Joshi for queries.

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