Hybrids to take centre stage in India in medium term: Ind-Ra

Hybrids may remain an important part of the medium energy transition plans in India compared to developed markets where they are seen as short-term solutions to an eventual EV transition, according to India Ratings and Research (Ind-Ra).

The limited penetration of electric vehicles, withdrawal of government subsidies and range anxiety make a strong case for a higher penetration of hybrids in the short to medium term, the rating agency says.

There shall be co-existence of hybrid and electric vehicles amid the government’s thrust to reduce oil imports and shift to cleaner fuels in the automobile sector, says Ind-Ra.

India being a coal-intensive economy, the co-existence with hybrids may limit carbon emissions compared to ICE till EVs are in a position to alleviate some of the concerns, it says.

India’s mass car market currently has five hybrid models from three Japanese carmakers - Toyota, Maruti Suzuki and Honda.

EVs attract 5% GST (Goods and Services Tax) whereas hybrids attract 43% GST. While hybrids remain competitive compared to EVs, the transition from ICE vehicles to hybrids will add to the latter’s attractiveness through tax incentives, says Ind-Ra.

EVs cannot solely be a sustainable solution, as majority of the electricity needs are met from fossil fuels unlike western economies, the report says.

“The other contrast to western economies is the longevity of hybrid vehicle timelines i.e., it can just be seen as a transitionary vehicle in western economies due to their electrification targets, while in India we expect hybrid vehicles could take a center stage in the medium term,” it says.

The cost of ownership of strong hybrid vehicles remains similar to EVs in the short term and has a clear advantage over EVs in the medium to long term even after factoring in the higher taxation faced by hybrids, says Ind-Ra.

Ind-Ra believes hybrids can become cost competitive in the near term with steps such as registration fee withdrawal (as applicable in Uttar Pradesh) and rationalisation of other tax rates.

“Hybrids serve as a good interim step in moving towards cleaner fuel as they do not require a separate ecosystem and are cost efficient for consumers. With a little more support from the government regarding GST reduction, tax and other rebates, hybrids could act as an alternate to ICE vehicles, while the industry prepares for electrification,” says Shruti Saboo, director, Ind-Ra.

Ind-Ra opines EVs and hybrid vehicles market shall co-exist in the medium term, for meeting sustainability targets and reducing oil imports. Both EV and hybrids account for around 2% each of the total vehicle market. However, the policies are largely in favour of EVs; and for hybrids to pick-up, formalisation of policies supporting hybrids would be imperative. Few large auto manufacturers have been insisting on tax cuts to promote hybrid vehicles ecosystem.