Electric vehicles penetration to remain low in medium term: ICRA

Electric vehicles penetration to remain low in medium term: ICRA

AgenciesUpdated: Tuesday, September 22, 2020, 12:34 AM IST
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Electric vehicles penetration to remain low in medium term: ICRA | Mike

Absence of strong direct and indirect financial stimulus from the government to encourage electric vehicles (EVs) adoption will restrict any meaningful domestic penetration of EVs in the key automotive commercial and passenger vehicles segments given their high prices, ICRA Ratings said on Monday.

According to the rating agency, the present FAME II incentive for electric PVs is restricted to the commercial taxi segment only which also highlights the government's awareness that the attractiveness of EVs for personal car buyers will remain distant in the near to medium term.

This apart, the EV vendor systems needs substantial investments to keep costs under check and reduce dependence on imported electronic systems.

The agency said that that battery swapping will face strong resistance from automobile OEMs due to a possible impact on their product differentiation capabilities as well as pricing flexibility.

Its acceptance therefore will be limited to certain less complex automotive sub-segments like three-wheelers (3W). Further, given the importance of battery hardware and software in the overall performance of an EV, battery swapping will face strong resistance in technologically complex products like cars or two-wheelers, ICRA said in its note on EVs.

"The price sensitivity nature of the Indian market implies the EVs need to be priced competitively which, in turn, demands 'economies of scale'. At present, EV prices are much higher than their ICE counterparts. This, coupled with a limited/lack of public charging infrastructure, has resulted in minimal EV penetration in the country. Government support in the form of direct/indirect financial incentive and supportive regulation will be crucial for EVs to gain traction in the Indian market," said Ashish Modani, Vice President & Co-Head, ICRA.

The expectation is that the automotive sub-segments like the three-wheelers (3W), two-wheelers (2W, especially scooters), intra-city buses and small commercial vehicles (SCVs) will emerge as early adopters due to the comparable total cost of ownership with their ICE counterparts. However, EV penetration is likely to remain low in the passenger vehicle (PV) and heavy trucks segment.

"Over the next five years, EVs will account for 8-10 per cent of the new vehicle sales in 2W and intra-city buses, whereas its share will remain about 3-5 per cent in the PV segment. However, the 3W segment may witness rapid transition with sizable EV penetration (in new vehicle sales) by 2025," Modani said.

Through a recent decision, registration of EVs without battery has been allowed. The idea is to overcome one of the key barriers for EV adoption i.e. high upfront cost by segregating battery cost (which accounts for about 40 per cent of vehicle cost), thereby lowering the price of the EVs below ICE (internal combustion engines) counterparts by adopting the battery-sharing/swapping model.

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