Tata Motors To M&M's EV Blitz Unlikely To Drive Large-Scale Adoption Till At Least 2030

India may not have an electric car affordable enough to drive large-scale adoption till at least 2030 even as the nation's carmakers line-up multiple battery-powered vehicles in the next five years.

It would take another five to seven years for an affordable electric car to hit the Indian roads as expensive batteries make up for 45% to 60% of the car's cost.

India targets to turn 30% of cars electric by 2030 as part of its multi-pronged approach to lower oil imports and cut pollution to meet climate goals. The target is crucial to achieve the pledge of reducing emission intensity of the country's GDP by 45% from 2005 levels in the next seven years.

The government has announced incentives for local manufacturing of EVs and components. As the global transition to electric mobility accelerates, Indian automakers have firmed up their plans.

On the Independence Day, Mahindra & Mahindra Ltd. and Ola Electric Pvt. unveiled plans to enter the electric car market. Rivals Hyundai Motor India Pvt. and Tata Motors Ltd., too, announced a similar road map.

These plans, however, do not target the hatchback segment, a relatively affordable category that contributes 38% of total car sales in the country. Most of them are targeting the sports utility vehicle category.

India's largest carmaker Maruti Suzuki India Ltd., which sells the nation's every second passenger vehicle, prefers hybrids over pure electric. It's sole electric model is likely to be in 2025.

With carmakers not targeting in the price-sensitive market of up to Rs 10 lakh, the possibility of an affordable electric car in the next five to seven years is distant.

Tata Motors' Tigor EV starts at an ex-showroom price of Rs 12.49 lakh, making it the most affordable EV made by a major carmaker. Starting at Rs 14.99 lakh, Tata Nexon EV is the next in line, while MG Motor's ZS EV and Hyundai Kona are priced higher.

“If you're demanding speed, range, and performance equal to a petrol or diesel car, it is impossible to create a similarly priced vehicle,” Sohinder Gill, director-general of the Society of Manufacturers of Electric Vehicles, told BQ Prime.

“Even after four or five years, the initial cost will not be equal to a petrol or diesel car,” he said. The cost of battery itself would constitute 45% to 60% of the total cost depending upon the model, he said.

Notwithstanding the savings on fuel prices and maintenance costs, the upfront price gap between an electric and conventional car could be too steep for mass buyers.

“Overall cost of ownership, including fuel and maintenance costs, may remain low," said Animesh Kumar, senior director at Frost & Sullivan. "But you can't sell that story to an average consumer who cannot afford the vehicle at the very beginning.”

If cells and batteries are manufactured locally then prices can be lowered by 30% to 40%. That could be a big step-up for electric car sales in India.

“A one-kilowatt battery costs around Rs 27,000-28,000, and for cars the requirement of 25-40 kW batteries would mean a cost of at least Rs 7-8 lakh, just for the battery,” said Abhishek Jain, research analyst at Dolat Capital Market Pvt.

Cost can be reduced if "we manage to localise cell manufacturing as importing cells attracts additional costs such as freight cost, import duty, and goods and services tax", he said. Currently, most of the cells are imported from China, South Korea and Japan.

Gill of electric vehicle makers' association disagrees. The localisation of cells may not make a huge difference, he said, as India imports most of the raw materials needed for the prevalent chemistries of batteries.

“In actual practice, international raw material prices will govern the cell prices,” he said. “What remains is the cost of manufacturing, which is not very high as compared to the cost of materials,” said Gill, the chief executive officer of Hero Electric Ltd.

Prices of raw materials that go into making batteries have been rising. A report published last month by Indian Venture and Alternate Capital Association said the moment has already arrived where the raw material suppliers are not able to service the sudden spike in demand for EVs, which is set to result in battery price increase in 2022.

In China, price of lithium carbonate has reached $41,000 a tonne, five times higher than the prices in January 2021, the report prepared by EY and IndusLaw, stated. Similarly, the price of cobalt has doubled since January 2021 and Nickel has jumped 15%.

The large-scale transition to EVs, earlier expected to happen after 2023, is likely to be delayed by at least three years, CareEdge Ratings Ltd. said in a recent report.

“Production costs for lithium-Ion batteries are not likely to reduce from current levels for the next three years,” the report said, “thereby dampening demand for EVs to some extent.”

Vehicles powered by fossil fuels will continue to dominate for longer than expected, hurting India's target of reducing emissions.