India has a young and growing working-age population and is seeing rapid urbanization, yet with low levels of motor vehicle ownership today (20 out of 1,000) which is projected to grow by 775% (175 out of 1000) by 2040. Cities like Delhi and Bangalore are already reeling from high levels of smog ,and traffic congestion is seriously affecting the quality of life of their inhabitants. Additionally, the growth in vehicles on the road will also stress the energy security as there is already a significant level of oil imports (40% of total oil demand, 3% of GDP). Presently the transportation sector in India accounts for 15% of all greenhouse gas emissions. Switching to an entirely electric fleet can help reduce 1 Gigatonne of carbon dioxide emissions by 2030 and save India US$330 billion by cutting oil imports. For India to transition to a new sustainable future it needs to leapfrog into an electric future. The EV market also provides the opportunity to drive localized innovation in battery technology, create local manufacturing and service jobs, and add to the potential of distributed energy generation.
The Global Scenario
World EV sales was 773,600 units in 2016 which was 42% higher than 2015. China was by far the largest electric car market in 2016, accounting for more than 40% of the electric cars sold in the world. With 29% market share for EVs in 2016, Norway has incontestably achieved the most successful deployment of electric cars, globally.
According to Bloomberg, EVs are expected to become price competitive on an unsubsidized basis, beginning in 2025. Presently, the share of battery price today, mainly Li-Ion batteries, is around 48-55%, which is expected to come down to 18-23% in BEVs by 2030, while the average energy density of a Li-Ion battery will double by 2030 to more than 200 Wh/kg.
India’s electric vehicle industry (0.1% share of global EV market) is in its infancy compared to other international markets such as the US, China & Europe. India sold 30,46,727 passenger vehicles in FY 2016-17 of which only 22,000 were electric vehicles.
The main reasons consumers are still shying away from EVs are
1) Range anxiety
2) High capital cost of electric vehicles, and
3) Battery replacement cost.
Presently, the Government of India has set an ambitious target of having 100% electric vehicles for public transport and 40% electric for personal mobility by 2030 but wants to let the market make the choices in technology adoption. Various state governments like Karnataka and Maharashtra have come up with EV policies to push adoption of EVs. Along with policy framing, investments for R&D/manufacturing centres, and setting up of charging stations with special subsidized energy rates for EV are already happening.
From the investor’s perspective, everyone seems to want a piece of the pie. From Finnish state-controlled energy utility, Fortum, which plans to develop EV charging infrastructure in India, to billionaire Sajjan Jindal's JSW Group, which is exploring a partnership with China's Zhejiang Geely Holding Group Co. to make EVs, - the list of investors drawn to India's EV sector is quite long. SUN Mobility, promoted by the Khemka Group, and Mani Group (the pioneers of EVs in India) plan to partner with Leclanché for developing battery storage solutions while already working with Ashok Leyland to develop EV public buses with swapping infra for intra-city travel. China's Zhuhai Yinlong New Energy is also planning to set up an EV manufacturing plant in Punjab.
There is a lot of potential for new entrants in the EV sector of India. Various startups from 2W manufacturers like Ather Energy, GoGreenBov, Lithos Motors to 3W manufacturers like Gayam Motor Works have come up to reap the benefits of this transition. In the 4W sector, apart from big automobile players like Tata Motors and Mahindra & Mahindra, no new start-ups have come up yet. Alongside companies like Ion Energy, Sun-Mobility are working on various storage and swapping technologies to fill the void in the charging sector. Investments ranging from a few thousand dollars in seed to millions of dollars in Series B are already happening. For early investors in this space, while taking on technology development and adoption risk, it is more valuable to bet on the right service platforms and business models, driven by customer and partner feedback.
It is undeniable that the current electric car market uptake is largely influenced by key support mechanisms like deployment of charging infrastructure and an anchor load of electric vehicles. We believe that for EVs to be successful and witness a sustainable growth, either the entire ecosystem needs to be addressed, or smaller self-sustained ecosystems need to be created. The entire EV ecosystem growth can be driven by the private sector, initially by venture capital funding, while growth or the expansion stage can be funded by private equity or corporate investments. In our report, a demand-based approach has been analysed to address various business models including models for private and public transport as well as B2B models for supply chain (or logistics companies involved in last mile delivery). We believe that urban areas are excellent platforms for the experimentation of novel passenger and freight transport services, based on vehicle and ride-sharing concepts, alongside distributed generation and storage of energy and future technologies like autonomous vehicles owing to the fact, that these concepts have strong synergies with transport electrification.
India’s Work Travel Pattern
According to the 2011 Census survey, among the 140 million workers who commute for work, the distances tend to be quite small. The highest percentage of vehicular travel is between 2 to 5 km - which comprises of around 23% (approx. 45 million).
Now, if we look at the modes of transport (figure below) it is quite surprising to see that in Urban India, almost 23% prefer walking (offices being close by), around 17% use two wheelers (bikes/scooters), 13% use bicycles while only around 4% use their four wheelers. The rest 20% rely on public transport, a majority of which is by bus (11%) followed by trains at 4%, and only 3% use shared private services like taxis, autos and tempos.
Mode and Share of transport in Various Cities
According to a 2011 Census, it can be observed that 30% of people travel on two-wheelers in Pune and Nagpur, followed by 19% in Bangalore. The private car segment share is highest in Gurgaon at 23%. The Delhi metro had an average ridership of 1.55 Mn in 2011 (~34% of total travelers). In 2016-17, Delhi NCT, had an average metro ridership of 27.6Mn. Delhi Metro data is not included in the above survey.
Apart from travel to work, NSSO (National Sample Survey Organisation), carried out a survey in 2014-15 to understand India’s non-work travel pattern. According to the survey, in the 365-day category, “health and medical” was the leading purpose of the trip in both rural and urban areas, accounting for 40% of all travel. It was followed by leisure activity (35%).
Private Vehicle Ownership
During 2016 the proportion of car-owning households stood at 11%, as per the ICE 360° survey. The proportion of two-wheeler owners has increased to 36%, while the proportion of bicycle owners has increased to 58%.
The share of two-wheelers (2Ws) is almost similar in urban and rural areas, while for four-wheelers (4Ws) 60 % of ownership lies in all urban areas.
Matching Demand & Supply
B2B Model ‑ Fleet - Instant Delivery- 2Ws
B2B Model ‑ Fleet E-Commerce – 2Ws and 4Ws
B2C Model: Private Transport System - Model A
B2C Model: Private Transport System - Model B
Rental Model 2W
Rental Model 4W
The highest potential lies in the Electric 2W segment where 33 Mn commuters own their own 2Ws. With a 20% adoption rate, India can have more than 6 Mn 2W-EVs by 2020.
For, shared mobility (cabs and autorickshaws) with 20% adoption rate, there is an opportunity for 720,000 of electric 3W and 4Ws on road.
We believe, with a strong consumer-led demand growth, EV ownership in most Tier-II and Tier-III cities and towns will go hand in hand with the spread of decentralized renewable energy (mainly rooftop solar PV) and storage. The new self-reliant EV customers will have their own 2W and/or 4W which will be charged at their homes and offices either through the grid or through rooftop solar PV systems, not depending on any public infrastructure to be setup. With the development of modular battery technology, these customers will have the opportunity to leapfrog into a distributed RE future where EV batteries can be used for energy storage and households will be able to provide the utility services for grid stability by sending energy to the grid based on demand.
The tale might be slightly different in Tier-I cities where housing societies and rented homes are more prevalent. In Tier-I cities shared charging infrastructure or norms for community ownership might need to come up or see a strong eco-system of public charging stations before EVs are taken up. We are hoping that infrastructure developed in Tier-I cities to support B2B logistics and delivery players - last-mile connectivity providers and public transport providers - might act as the initial anchors for the shared charging infrastructure (ala telecom towers for energy access in rural India). Consumer vehicles can use these charging stations through a PAYG or subscription model adding revenues to the EV-CS service providers and addressing range anxiety issues for consumers. One will also be able to request a quick mobile DC fast charging facility for their vehicle if and when required.
We believe mobile charging on demand will be equally popular in rural and semi-rural areas. DG set based energy providers can diversify their business to provide PAYG charging services for EVs. In-semi rural and rural areas, where the share of 2Ws is high, apart from residential charging stations, shared charging stations run by local shops in mandis (markets) might come up similar to how mobile charging happens today. These micro EV-CS have the opportunity to utilize DRE and storage to ensure reliability, or use the services of micro-grids in their community, adding to their viability.
Tier I City Model
Tier II and Tier III City Model
For EV adoption, we have given our perspectives on various ways for it to be successful and sustainable in this report. Many more can be added as we move forward, with better technological development and innovative business models.
At Sangam, we believe all this is possible and can become the reality. As Dr. A.P.J. Abdul Kalam once said, “You have to dream before your dreams can come true.”
Read our report here.