Saturday, September 30, 2023

Is subsidising electric vehicles a sustainable proposition today? ⭐


The growth of electric vehicles in India and in the rest of the world is largely driven by government subsidies and incentives. Economically, is this subsidised system to boost electric mobility viable for the long term?

During the last few years, several countries have taken huge initiatives in setting up electric vehicle parc, especially for two-wheelers and passenger cars. Recently we have seen buses also running on batteries. We have seen similar initiatives in the past when humanity faced energy crises and people were looking for alternative sources of energy. However, this time it is not only energy shortage but also global warming that is leading people to search for clean and available energy. The options are pure battery-operated vehicles and plug-in hybrid vehicles with a combination of battery and petrol/CNG or diesel or fuel cell vehicles.

Pure electric vehicles carry a battery that can be charged from the grid power and is a convenient way of addressing our problems with conventional fuels and the negative impact on air quality in cities. The USP of electric vehicles is that they are saving the climate and as such saving our lives. However, one tends to forget that these vehicles are charged from grid power, which is mostly coal-based and only shifts the pollution from the tailpipes of vehicles in cities to the location of power plants. This does not have a positive contribution to improving the climate as is claimed.

In recent times when I meet people in connection with my past engagement with the automobile industry through SIAM, one question I often encounter is, “I am planning to buy an electric car, which brand do you suggest?” Normally I say that currently in India we have mainly two models which are quite popular with the consumers – the first one is Tata Nexon, which is indigenously developed and less expensive and the other one is Hyundai Kona, which is imported and as a result is quite expensive in India.

Apart from Tata Motors Electric, there are some other manufacturers also who are trying to establish themselves in this market, like Mahindra Electric, Ashok Leyland Electric, Olectra, MG Motor etc. in cars and buses and Hero Electric, Okinawa, Ola Electric etc. in two-wheeler space. However, there are not too many customers to encourage manufacturers to invest heavily and manufacture electric vehicles in India.

Moreover, Chinese brands are also looking at expanding their market and entering the Indian market with the intention to completely dominate the market like the way they have done in the electric three-wheeler space with their kind of offerings at an extremely low price point.

However, I further explain to people that one must realise that the electricity generated at the source may not be clean. In India electricity is generated mainly from coal, which is extremely polluting, especially from the point of view of global warming. Also, we need to realise that the current technology for electric vehicle propulsion which is based on lithium-ion and cobalt batteries is not a particularly satisfactory solution from the point of view of range and availability of raw materials for manufacturing the batteries.

Also, because of the limitations of current electric vehicle technology, advanced countries are seriously engaged in developing innovative technologies for more sustainable electric vehicle programs. Currently, the following four types of batteries are commonly used today in electric vehicles – Lead Acid, Nickel Cadmium (NiCd), Nickel Metal Hydride (NiMH) and Lithium-ion (Li-ion).

Lithium-ion batteries have higher energy density and longer life span compared to the other battery types and have emerged as the most popular.  However, the complicating factors include safety, durability, thermal breakdown and cost. Li-ion batteries should be used within the safe temperature and voltage ranges to work safely and efficiently.

Lithium and cobalt are the main raw materials for the current technology batteries. Both are scarce raw materials and available in limited quantities in a few countries. The current sources have been largely acquired by China which dictates the terms for the sale of these two products. Globally companies are now looking at various alternative technologies to lithium-ion batteries. Serious work is going on to evaluate Sodium-ion as an alternative to Lithium-ion, which will be much less expensive, abundantly available, and safe.

While the prices of lithium-ion batteries have come down significantly over the last ten odd years due to growing adoption, it was expected that they will continue to go down in future when the demand becomes of significant economic size. In reality, it has been noticed that after the initial reduction in prices the suppliers have actually increased prices and we do not expect that the lithium-ion battery prices are going to reduce the way we had anticipated in the past. Also, the efficiency of the technology is not improving in the desired manner so that the running cost becomes reasonable and at the same time it can address the range anxiety of customers.

In this context, let me address some key questions I am asked on the current practice of subsidising EV sales in India.

Subsidies have been claimed to boost EV growth in India. How long subsidies will support the system?

To overcome the limitations and garner customer acceptance, countries, especially the western nations and China introduced heavy subsidies for electric vehicles, which are in billions of US Dollars. However, after some time and after the market grew, whenever the governments withdrew the subsidies, the demand collapsed. This has led to the reintroduction of subsidies in countries whose governments can afford them.

In India also, NITI Aayog and the government are following a similar path of subsidising electric vehicles to make them popular in the market and create artificial demand. At times I feel that the policymakers in India are suffering from FOMO! One must realise that India is a developing country with a substantial population under the poverty line. Can India really and ethically go on subsidising a personal vehicle on a long-term basis without any political ramifications?

Can subsidies and incentives be a long-term sustainable solution? From both consumer and manufacturers’ perspectives.

Subsidy and incentives cannot be a long-term sustainable solution, especially for India. The government is making huge efforts to put pressure on the industry to manufacture electric vehicles. This is very surprising. One must realise that the current technology of electric vehicles is not a long-term solution.

One must evaluate whether a country like India can afford to experiment with such interim and unstable technology, which can be sold to a customer only with an unsustainable subsidy.

What will happen when the government stops offering EV subsidies?

Just like Europe, USA or China could not continue heavy subsidies for long, India will also not be able to continue to subsidise electric cars and electric two-wheelers for a long time. Then, with the current cost structure, most people will not be able to afford these vehicles anymore, which will lead to huge investments going to waste.

Obviously, by the time everyone realises that new and more sustainable technology has emerged and taken over the market, many people would have spent huge sums of money – both customers and the manufacturers. Today we see customers are already committing themselves based on all kinds of discussions on various platforms, but manufacturers are still not convinced and stay sceptical

What are the disadvantages of the subsidy and incentive-based EV ecosystem? From both consumer and manufacturers’ perspectives.

It has been seen that whenever the policymakers intervened in technology adoption the economic logic takes a backseat. It is believed that if the policymakers lay down a reasonable policy road map for reaching goals, the society, including the industry, finds its way to fulfilling its obligations. This way both the manufacturers and customers are spared from making unsustainable investments as a consumer and as a manufacturer and incur heavy wastage of resources.

Despite subsidies, why is electric vehicle adoption in India minuscule?

As is expected, the customers of cars realise that current electric vehicle technology may not be ideal and hence one is tentative about buying an electric car. Two-wheelers, with comparatively lower levels of investment and fewer power requirements, are still getting enquiries. Manufacturers are not investing freely in the current extremely expensive transient technology because of which not attractive offers are visible in the market. This is not only in India, but globally also despite having a considerable number of models available, one does not hear about successful electric vehicles except for one brand, Tesla!

There are several recent technologies being developed in this area – new chemicals and new combinations, which are safer, more stable, and less expensive, like Sodium-ion, which can change the whole electric vehicle story altogether. A lot of work is also going on in the development of Hydrogen Fuel Cell vehicles which will solve most of the limitations of current technologies.

Policymakers in India should focus more on supporting the development of a robust Hydrogen Fuel Cell technology and let the manufacturers decide their preferred technologies to meet emission and fuel efficiency targets in the interim. Forcing the current lithium-ion battery technologies on Indian vehicle makers will make them completely dependent on China and usher in an unintentional destabilisation in the industry.

Disposing of the used lithium-ion batteries at the end of their useful life in an environmentally friendly manner is going to be another huge challenge and can create havoc in a nation’s water resources. But that is another story altogether.

Also Read: The end of the ICE age

(Sugato Sen has served as Deputy Director General at SIAM. He also served as the secretary of several working councils at SIAM overlooking international business, market and economic affairs.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)


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