Our official EV policy on the other hand continues to muddle along. We started off with a bang in 2017 when a clear and ambitious goal of 100% EV adoption by 2030 was officially communicated by the government and the country’s leading government think tank, NITI Aayog. SIAM countered this with a research paper stating that this is unlikely before 2047 and (justifiably) will put the significant investments being made to transition to BS VI at risk.Since then there has been a lot of backtracking and the confusion in the policy is evident in the latest FAME 2 policy. The Government has approved a budget of Rs 10,000 crore for FAME 2, applicable from April 1, 2019 for a period of three years, from 2019 to 2022. But the subsidy will be only applicable on commercial vehicles and public transport along with two-wheelers. The scheme will also offer exemption from road tax and registration charge for hybrids and EVs. However, the benefits of the FAME 2 scheme will be only available on the vehicles powered by lithium-ion batteries or more efficient power source. Additionally, FAME 2 also mentions the development and installation of EV charging infrastructure wherein 2,700 charging stations will be placed at different locations in Tier I as well as other cities in the country. The intention of this is to have at least one charging station in a grid of 3km x 3km to provide additional convenience to the operators of both commercial and public transport vehicles. These charging stations will be positioned on the highways as well in a distance of 25km. FAME 2 has the drafted with the right intentions by: officially acknowledging that e-ricks are a critical part of the EV ecosystem in India providing subsidy only for Lithium Ion powered vehicles (and not lead acid) recognising that we need to have an indigenisation plan in parallel to the growth of the industry which needs to be shaped by policy and we should not repeat the mistakes made with the mobile phone industry where import dependency on China resulted in a booming trade deficit and the lack of strong Indian brands with a cost competitive position laying adequate emphasis on public transport (buses and e-ricks) and leveraging demand aggregation through EESL focusing on 2 wheelers for driving private vehicle adoption, which will result in the subsidy going a long way in driving volumes consciously emphasising battery charging infrastructure and swapping as drivers of growth

However, the devil is in the details. By asking for a minimum level of 50% indigenisation from April 1st 2019 for being eligible for subsidy, the policy has effectively ended subsidy for the industry from this date – there is nobody with this level of indigenisation in the EV industry (the e-ricks are largely unregistered and hence even in the past was not claiming subsidy). By not recognising that the supply ecosystem is not ready and specifying thislevel of indigenisation from get-go, the policy has effectively killed the organised EV industry till the industry is able to ramp up the indigenisation. One of the largest component in the EV is the Li-ion battery. The fact that there is inadequate capacity for battery pack assembly to meet the needs of the industry has not been considered. Similarly, capability for other key components like motors, powertrain, etc. are yet to be developed of any scale. Given the low volumes of the industry, cost economics and interest and infrastructure among the eco-system players are critical bottlenecks to be addressed as part of any indigenisation journey. Thus, it is logical for the policy to specify such a level of indigenisation from a future date (say April 1st 2020, rather than 2019). This wouldhave given the Indian players the time required to make the adjustments.

Industry players are making representations to allow changes to the policy but the outcomes will be known in the next few months. In the meanwhile, one can expect a sharp dip once again in the EV sales in FY20

III. Implications for India: If both demand aggregation and battery swapping are successfully implemented, we project India reaching EV sales of around 1.5 million vehicles in FY24. This is an overall Compound Annual Growth Rate (CAGR) of 28% from FY19. Government procurement and public transport will be the major drivers of this growth, through procurement of vehicles for Government use and 3-wheelers and buses for public transportation. Growth in the 4-wheeler space is likely to be driven first by investments by private fleet operators like Ola and Uber, where higher daily running makes EVs more economically viable. The 2-wheeler space will be largely private ownership and subsidy driven, and will becharacterised by a migration from Lead Acid to Lithium-ion batteries and from low speed to high speed vehicles. Despite this promising growth, we expect that the originally stated target for full conversion to EVs by 2030 to be very ambitious and are likely to be missed due to the industry and consumers not being ready to adopt rapidly,  given the relative economics. Our growth projections suggest that EVs will account for less than 2% of total vehicle sales by 2024. From that position, reaching the government’s goal of 100% penetration by 2030 seems farfrom achievable. The other key aspect to be noted is that the shift to EV will not necessarily result in a significant reduction in our import dependency. While cumulative oil imports for the automotive industry from 2017-30 in a “Business as Usual” scenario are expected to amount to INR 40 Lakh Cr, India would still have an import bill of INR 15 Lakh Cr for Lithium-ion cells and INR 17 Lakh Cr for oil in case it completes its transition to EVs. This results in a savings of INR 8 Lakh Cr. While India has a long way to go to achieve its EV ambitions, it is clear that EVs do present a short term high growth opportunity in key segments and will, no doubt be an inevitable disruption in the long-run; one that requires a cohesive strategy at both the government and corporate levels. 

IV. Implications for Tool and Gauge Industry: Time to Re-tool?Engines and drivetrains are large drivers of the auto components industry. Engine and transmission together account for almost 50% of the total cost of a vehicle. Electric Vehicles would revolutionise this - 149 moving and 24 wearing parts would be replaced by 24 moving and 11 wearing parts in an EV.

But on the other hand, EVs would call for more complex single piece constructs, and hence more complex, higher value add tools. The EV revolution is also expected to be accompanied by increasing use of telematics, power electronics etc. which would  drive the increasing use of micro-components. Additionally, there would be requirements of plastic, sheet metal and cast components in charging infrastructure as well.