As Tata, Maruti Suzuki and Hyundai increase their local EV (including plug-in hybrids) production in India, growth in sales is expected to accelerate and if Tesla moves to produce EVs in India over the medium term, consumers may hold off on buying an EV as they wait for Tesla-branded vehicles, says a research by BMI, a Fitch Solutions Company. The report remains bullish in FY2023 and expects India’s passenger EV sales to increase by 64.1 per cent y-o-y to reach nearly 80,000 units sold annually and a passenger EV penetration rate of 1.9 per cent.
Over the long term, the development of a local EV supply chain (mining, refining and cell production) will set the pace of EV adoption in India. However, this will give the local industry time to develop the required skill base to support higher value add manufacturing such as EV batteries and electronics.
Over FY2022 (April-March), passenger EV sales in India increased by around 143.2 per cent y-o-y to reach an annual sales volume of just over 48,000 units, which represents a passenger EV sales penetration of only 1.2 per cent of the market’s total passenger vehicle sales. As more EV models become available in India over 2023-2027, there is likely to be stronger EV uptake; however, it will depend heavily on whether the Government continues to severely tax imported vehicles and components from mainland China. Over FY2022 (April-March), BMI estimates that commercial EV (buses and trucks) sales in India reached just under 9,000 units annually. This represents an EV penetration ratio of only 1.0 per cent. In July 2022, India announced its intention to invest around USD10 billion (or around 50,000 electric buses) in its electric bus fleet to aid in decarbonising the road transport sector.
The report cites lack of a local EV supply chain (mining, refining, battery cell and pack production), as one of the most significant barriers to EV adoption in India, given that the Government has implemented very restrictive import policies for autos and components, especially from China which currently produces over 80 per cent of the global battery supplies. This means higher EV costs, long delays at ports and slow supply of EVs.
The Union Budget has removed the customs duties on imported capital equipment for lithium-ion battery cell manufacturing (which previously ranged from 5 per cent to 20 per cent), which will offer some support. However, the BMI report expects that strong competition for investment in battery manufacturing in other markets such as the US (following the adoption of its Inflation Reduction Act), the EU, China and South Korea, among others, will see the cost of the capital machinery likely increasing over the coming quarters. Over the long term, we expect that plug-in hybrid electric vehicle sales in India will accelerate as automakers such as Maruti Suzuki and Toyota focus on hybrid vehicles instead of battery electric vehicles.
This, along with the potential increased supply of more affordable EVs from mainland China (MG, Wuling And BYD) and a likely ‘price war’ in India will offer strong upside risk to BMI’s current forecast over 2023-2032. We currently expect India’s passenger EV sales to average annual growth of 23.1 per cent over 2023-2032 to reach a high of around 355,000 units sold annually representing 4.6 per cent of total sales.
India’s EV adoption incentives include reduction of Goods and Services Tax (GST) on EV sales from 12 per cent to 5 per cent while GST on chargers on charging stations for EVs has been reduced from 18 per cent to 5 per cent. The Ministry of Road Transport and Highways announced that EVs will be given green license plates and will be exempted from permit requirements. Over its 2023-2032 forecast period, BMI expects exponential growth in commercial EV sales in India as the government electrifies fleets to control the high level of pollution in cities. In FY2023, BMI expects commercial EV sales in India to rise by 166.7 per cent as the government moves ahead with its planned bus electrification.
As per the research, commercial EV adoption will face a strong challenge over the medium term from natural gas-powered vehicles. Compressed natural gas (CNG) trucks may fill the gap between internal combustion engine vehicles and EV adoption because it is more affordable. The electrification of India’s CV fleet will also benefit from increased interest in hydrogen fuel cell vehicles (FCVs).