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The government seems to be getting cold feet about continuing its raft of incentives for electric vehicles (EVs). Does the recent statement by Union minister for Road Transport Nitin Gadkari signal a possible derailment of long term goals?
Addressing a green mobility convention in Delhi, Gadkari said subsidies for electric vehicles (EVs) may no longer be necessary for consumers. He said EVs are charged a GST of just 5% compared to 48% for gasoline vehicles. If after this, people are expecting further subsidies from the government, “then my honest opinion is now we don’t need the subsidies.”
The minister said considering the lowering battery costs, and the increasing volume of sales, he expected price parity soon between e-vehicles and their dirty-fuel cousins. So where’s the need for government intervention?
The minister’s school of thought seems to be growing. The Delhi government has just announced it was rolling back the waiver of road tax on electric vehicles in its new policy. The old policy had made EVs cheaper by 10%, but the new impost has now resulted in a near-standstill of sales, one business daily reported.
Currently a slew of demand incentives by the Union and state governments have allowed EVsto compete with similar diesel/petrol models. The FAME incentives for instance subsidizes EV cars by Rs 1.5 lakh and 2-wheelers by Rs 20,000 each. Despite these incentives, EVs continue to be more expensive than their fuel counterparts.
Change of plans
India being an extremely price sensitive market, has therefore been lagging on its EV targets. Despite the lofty goal of 30% conversion to EVs by 2030, since 2018 only 5.3% of all 2-wheelers sold are EVs, while cars account for just 2%.On the other hand, globally, about 20% of all cars sold in 2023 were electric.
The plateauing of demand for EVs has forced a change of business plans for many international auto makers. Volvo Cars of Sweden has abandoned its EV-only target by 2030, and will now aim instead for a 90% mix of plug-in hybrids and EVs. It has cited a decrease in demand for electric cars as well as increasing tariff barriers in the US, and Europe against made-in China cars. Volvo is majority-owned by the Chinese company, Geely.
This is not to say that EVs are on reverse gear. In fact, in the US, projection for 2024 show EV sales rising by 9% - from one million units last year to 1.2 million this year.
But what IS happening is the EV revolution is taking longer than we expected. As the initial consumer excitement wanes, Ford US is delaying its three-row electric SUV and the launch of its pick-up EV truck has been rescheduled to 2027. Lithium Americas announced recently that General Motors had agreed to delay an additional investment worth $330 million in the miner until the end of the year. Rent-a-car Hertz is offloading its stock of EVs as it stock plummets and it finds Tesla cars damaged by bad drivers are costlier to repair than ‘normal’ cars.
“Welcome to the messy middle of the EV evolution,” says analytics firm JD Power in its just released EV retail share forecast for the US.
Course correction
One can see a similar course correction in India by the Japanese. Toyota, which internationally has opted for a ‘hybrid’ strategy in preference of an ‘all-EV’ target, has allied with Maruti Suzuki to focus on ‘hybrids’ instead of pure EVs. They have been rebadging their Plug-in hybrid EVs (PHEVs) and one can see the strategy working.
The Toyota Glanza, Urban Cruiser Hyryder, Urban Cruiser Taisor, and Rumion collectively sold 51,314 units from April to July 2024. These re-badged Maruti Suzuki models provided 52% of Toyota’s total passenger vehicle sales of 97,867 units during this period – a 35% increase. On the other hand, Maruti has ‘borrowed’ the Toyota Innova Hycross for its Invicto MPV.
Maruti Suzuki – with its fleet of Baleno, Swift and Fronx hybrid variants – expects to notch up a quarter of its total sales from these non-gasoline models. The PHEV has the advantage of using a dual source of power – gasoline and battery – depending on the terrain. It is cheaper than pure EV; and if the government accepts the demand to reduce GST on ‘hybrids’ from 43% to 12%, hybrids are likely to cannibalize the EV market bigtime. So where does this leave those – like M&M and Tata Motors – with a pure EV strategy for the future?
Coming back to Nitin Gadkari ending government subsidies for EVs.
The minister is wrong if he thinks the cost of production of EVs will ever level up with gas-powered ones. In the most developed auto market, the US, it hasn’t happened. According to data from Kelley Blue Book, the average price for electric cars was $56,520 in July, 2024, vs. gas-powered vehicles at $48,401. If the field hasn’t levelled in the US, it is unlikely to do so in India. Nitin Gadkari must reexamine his data.
The heavy industries minister H. D. Kumaraswamy has said the government will be framing the third phase of its electric mobility policy in a month or two. Without a slew of subsidies and support for EV makers, the EV revolution will be as good as dead.