- Although the government has been putting in efforts India has a long way to go in terms of EV adoption
- Non-Financial incentives are catalysts to the uptake of Electric Vehicles
- Netherlands is known for a dense charging network, along with a well-knit government structure, which has helped increase the EV uptake in the country
With the rising global emission concerns, governments across the world have planned towards building a sustainable transport system by setting aggressive goals for electric vehicles (EVs) adoption. Unlike other innovative models across the globe, EV uptake in India has not been easy and has posed a variety of barriers. These include high upfront cost, anxiety related to evolving battery technology, and absence of a stable EV manufacturing base. Other intangible barriers to EV adoption include socio-economic aspects like income, consumer demand, and behavior towards the uptake of this new technology.
Market Penetration & Adoption of Electric Vehicles
It must be noted that the initial market penetration of electric vehicles is the most crucial to the success of EV adoption in any country. However, that is hard to attain by only relying on the market forces, and usually requires governmental support. Governments across the world have focused on drafting EV related policies to make EVs attractive for consumers and ensure a reduced financial risk at the manufacturers end. Encouraging automobile manufacturers and infrastructure providers to expand their business has been vital to push EV adoption among potential buyers.
Subsidies have proved to support EV adoption throughout all countries. For instance, Sweden, which had a 7% e-car market share in 2019 gives an incentive of 60,000 Swedish Krona (5,700 Euros)
For China, subsidies on the purchase of EVs continue, while in Denmark, the removal of such a subsidy disrupted the EV uptake in the country. Similarly, China had introduced a new EV mandate to nullify the negative effects caused by the removal of subsidies in the country. Therefore, it is crucial to investigate the necessary changes that must be brought to the existing policy mechanism to overcome the challenges faced at the supply and the demand side.
Current Scenario of Vehicle Ownership in India
India is a developing country, with an urbanization rate of 34% (United Nations Department of Economic and Social Affairs, 2018). Indians living in the urban areas own more 2-wheelers (2Ws) as compared to 4-wheelers (4Ws), owing to the higher purchase price of 4Ws. According to a live mint report of 2017, only 12% of households in India owned 4Ws (Kundu & Bhattacharya, 2018), which was 9.75% until 2011. (Bansal, Kockelman, Schievelbein, & Schaur, 2018). The rate of increase in 2Ws ownership has been much more than the 4Ws over the years (Choudhary & V, 2017).
Figure 1 Vehicle Composition in India (2017) (Source: (Ministry of Road Transport and Highways, 2017)
Comparing vehicle ownership with the vehicle distribution in India, it can be well understood that the 2Ws are the backbone of private vehicles in the country (Ministry of Road Transport and Highways, 2017). Also, 43% of the population in India (Consultancy.asia, 2019) is a part of the lower-income group, which highlights the propensity of the households to buy a 2W or rather rely on the second-hand vehicle market.
Figure 2 Income group distribution in India (2018) (Consultancy.asia, 2019)
In addition to that, 3W auto-rickshaws are the lifeline of tier 2 and tier 3 cities, where a robust public transport system does not exist (Meisel & Merfeld, 2018). Further, cities like Mumbai, Kolkata are heavily dependent on public transport for the commute. Moreover, Indian Cities have seen a boom in the use of 2Ws for e-commerce related deliveries as well as the use of 4W as cabs for most work-related commutes (Ernst & Young, 2017). In terms of car rental also, the Indian industry is expanding and had reached almost 12 million users in 2018 (Avis, 2019).
Status of Financial Incentives and EV Adoption in India
EV Adoption in India has just entered its nascent stage with a sale of 1.56 lakh EVs (excluding e-rickshaws) in 2019 (Society of EV Manufacturers, 2019).
Figure 3 Trend of EV sales in India (mode wise) (Society of EV Manufacturers, 2019)
Out of these, maximum was electric two-wheelers (e-2Ws), followed by electric cars and buses. Electric rickshaws have existed before the Government schemes were launched in the country and a lot of electric three-wheeler rickshaws have also come in the market but are still a part of the unorganized sector. This level has been reached, owing to the initiatives taken by the Central and State Governments since 2010, as shown in the timeline.
Figure 4 EV Initiatives taken in India
FAME scheme had been launched by the Central Government in 2015, under which an upfront incentive on the purchase of electric vehicles was provided by establishing necessary charging infrastructure. Under the FAME I scheme (2015), the government of India had allocated an outlay of ₹795 Crores, out of which ₹495 Crores was spent to support 2.78 lakh electric and hybrid vehicles (EESL, 2019).
FAME II was launched in 2019 with an outlay of ₹10,000 Crores, out of which ₹8596 Crores is supposed to be utilized for the demand incentives. Out of this amount, ₹2,000 Crores are to be utilized to support 1 million electric 2Ws, and ₹2,500 Crores to be utilized for incentivizing 5 lakh registered e-3Ws, which include e-rickshaws (Gazette of India, 2015). In 2019, the Ministry of Finance also announced a reduction of Good and Services Tax (GST) on electric vehicles from 12% to 5%. The GST on the battery was also reduced from 18% to 8% (EESL, 2019).
Energy Efficiency Services Limited (EESL), an energy service company of Government of India (GOI), has been procuring e-cars via bulk procurement model and emerging as a service provider agency for end-to-end fleet management (EESL, 2019). The EESL is providing an e-car via lease model, which has three options (i.e. wet lease, dry lease, and outright purchase) for the consumer.
While on the commercial side, EV start-ups such as Lithium Urban Technologies are emerging in the country with an innovative business model. It caters to the corporate companies for employee transportation and has established city-wide charging stations, overcoming the challenge of a lack of EV ecosystem (Ernst & Young, 2017). This operator leases its electric cars to the companies for the commute of the companies’ employees (ET Auto, 2020). Lithium urban has fixed monthly revenue per vehicle, no matter the distance traveled per day. Moreover, Lithium has a charging hub in Gurgaon, comprising 25-30 stations, helping charge the fleet in Gurgaon at a cheap price (Chandar, 2020). Eee-Taxi also offers corporate mobility options and has a leveraged partnership with metro rail corporations, residential societies, malls, and with ‘Smart City’ municipalities for charging sites (World Business Council for Sustainable Development, 2019).
Other business models overcoming one of the barriers i.e. high upfront vehicle cost include battery swapping and service, contract models. Service contract models have proven to be successful and economically efficient for the e-2Ws, especially for those dealing with Food/Furniture Delivery, ranging from Uber Eats to Swiggy. E-3Ws are assumed to work on the investor-owned platform, where the investors place vehicles in the fleet platform. The investors can drive the EV adoption until the Internal Combustion Engine (ICE) 3-Wheelers are expensive and until the platforms can promise metrics to investors across higher utilization and more operational savings. Sun Mobility has been able to enhance the e-3W adoption by the battery swapping mechanism, which has reduced the upfront cost of the vehicle by about 40% (World Business Council for Sustainable Development, 2019).
Role of financial and non-financial incentives in EV adoption: Lessons from around the world
The need for EVs was realized in the early 1990s in the United States and Norway. With aggressive targets towards EV adoption, as shown below, many countries have come up with a plethora of financial and non-financial incentives.
Figure 5 EV sales % target across the globe
Ranging from a reduced purchase tax on e-cars to a fine based on emissions, the Norwegian Government has been able to give a big push to the electric cars, increasing Norway’s e-car share to 49% in 2019 (Haugneland, Lorentzen, Bu, & Hauge, 2017). Spain has an intriguing concept of Mechanical Traction Vehicle Tax (IVTM), which must be paid by each person riding a vehicle on the road and has been exempted from the EV users (Alonso & Sergio, 2020).
In Germany, the government has been giving a subsidy of € 2,000 on the purchase of battery electric vehicles and fuel cells (Beiker, 2019) along with double the climate protection surcharge on the conventional vehicles (Walz, 2020). France has a bonus-malus scheme, where the low emission vehicles are given a bonus while the more emission vehicles are charged a fine. An interesting service business model exists in Paris for the provision of e-cars, where the customers are supposed to pay a membership fee and time of use rate for the e-cars (Weiller, Shang, Neely, & Shi, 2015). Netherlands is known for a dense charging network, along with a well-knit government structure, which has helped increase the EV uptake in the country. Besides, Formula E-Team, a public-private partnership has been a crucial driver of EV growth in the country.
In Netherlands used e-cars are also provided at an additional subsidy of € 2,000 by the car dealers. UK has an Ultra- Low Emission Zone where ICE vehicles are charged a heavy daily fine, ranging from € 12.5 to € 100, which has given a push to the EVs.
In developing countries like China, electric vehicle industry has taken a rise in the recent years, owing to the ban on gasoline-based 2-wheelers in the city centers as well as an innovative cooperative commercial model for the e-bus fleet, especially in Shenzhen, where bus operators lease the battery from their providers, reducing the initial cost of an e-bus (Ministry of Housing and Urban Affairs, Government of India; Rocky Mountain Institute (RMI), 2019). Japan has been pushing on the supply side through the promotion of Public-Private Partnership encouraging the automobile manufacturers to participate and install charging infrastructure in selected cities.
In the United States, especially California, EV adoption has been given a push by the Zero Emission Vehicle program along with the incentives to the families according to the vehicle purchase price, vehicle ownership as well as the household income, which has led to an increase the EV users by 10% (Jenn, Hyun Lee, Hardman, & Tal, 2020). Canada has a special, discounted automobile insurance for electric vehicles along with an innovative Scrap program for conventional vehicles (Marcus, 2019). Further, Mexico and Chile allow EVs to ride on the roads on the days when vehicles are not generally allowed to move around (Hoy no Circula in Mexico and Santiago’s Circulation Restriction in Chile).
Non-Financial incentives are catalysts to the uptake of Electric Vehicles
These range from access to High-occupancy Vehicle (HOV) lanes and public charging infrastructure availability to free parking facilities in the cities, as seen for e-cars in the case of Norway. Moreover, in the case of e-2Ws, providing swappable battery infrastructure, providing the license to those aged 16-18 years to ride them, as in the case of China are some essential non-financial incentives.
For e-buses, giving incentives on the first bus trial, followed by bus rental stands valid for both the supply side and the demand side. In terms of e-3W, incentives on exchanging the advertising rights with the e-jeepeneys, in the Philippines has worked, along with providing e-3W on the favorable travel routes of Kathmandu in Nepal. Hence, non-financial incentives are also important players for EV adoption in many parts of the world. Thus, a lot of countries around the world have taken several financial and non-financial incentives to enhance EV adoption.
India has a long way to go in terms of EV adoption
Although the government has been putting in efforts for subsidizing the e-vehicles for the short term, some more incentives must be given at this burgeoning stage. Several business models have been in place, especially in the e-taxi and e-bike domain, more efforts are required to accelerate the adoption of e-buses and e-cars. E-2Ws have already picked up pace in many parts of the country, owing to the subsidies provided under FAME, but stringent actions like the complete ban of ICE variants, at least near city centers, as in China and mild actions like those taken in California might be required to be put in place for a robust EV structure in the nation.
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This article is written by Dr. Parveen Kumar and Dharna Dang. Dharna is a Transport Planning Student from School of Planning and Architecture, Delhi. Recently, she has completed an internship at WRI India under the Wipro Earthian Sustainability Internship program. she has also interned with WWF India, where she worked for the Sustainable Plan for Rudrapur and Haldwani, located in Uttarakhand.