It is raining sops for electric vehicles (EVs) these days. In her maiden Budget speech of FY20, finance minister Nirmala Sitharaman announced an income tax deduction of up to ₹1.5 lakh on interest paid on loans to buy EVs. And within days, the GST Council slashed the goods and services tax (GST) on these vehicles from 12% to 5%—the lowest indirect tax rate in the country. These measures were aimed at putting more electric-powered vehicles on India’s polluted roads in line with a proposal to ban all internal combustion engine-driven three-wheelers by 2023, two-wheelers under 150cc by 2025, and four-wheelers by 2030 in a bid to clean up the environment.
But the real question is whether these tax breaks are enough to push people to buy EVs, given the host of problems dogging the market. The issues range from not enough nationwide charging stations or a proper battery swapping policy to inadequate facilities for manufacturing affordable lithium-ion batteries as well as disposal of batteries. India has no lithium mines and might have to depend on China for its battery needs as Chinese players have acquired most lithium and cobalt mines in different parts of the world. “In the absence of adequate battery manufacturing facilities in the country, its energy-dependence will only shift from some countries to others,” says Sanjiv Singh, chairman of Indian Oil Corporation (IOC), the country’s biggest refiner.
There are other issues. As demand for EVs grows, consumption of petroleum products will slow down, resulting in lower revenue for the government from oil refining and marketing companies such as IOC, Bharat Petroleum, and Hindustan Petroleum. Moreover, the government will be saddled with an additional subsidy outgo to help consumers buy EVs. It will be a double whammy for the government: lower revenues with a higher subsidy outgo These issues are creating uncertainty in the minds not just of consumers but also oil companies. Consumers are concerned about high prices and “range anxiety” or the fear of running out of battery charge before reaching their destination. For oil companies, the main worry is that their investments in upgrading their refineries to meet new emission control norms may not pay dividends. Public sector oil refining and marketing companies have spent ₹31,000 crore to upgrade their refineries to provide Bharat Stage (BS) VI-compliant diesel and petrol to all car manufacturers by 2020.
These issues are creating uncertainty in the minds not just of consumers but also oil companies. Consumers are concerned about high prices and “range anxiety” or the fear of running out of battery charge before reaching their destination. For oil companies, the main worry is that their investments in upgrading their refineries to meet new emission control norms may not pay dividends. Public sector oil refining and marketing companies have spent ₹31,000 crore to upgrade their refineries to provide Bharat Stage (BS) VI-compliant diesel and petrol to all car manufacturers by 2020 in a bid to clean up the environment. As the number of EVs grows, such investments may not pay off as expected. With EV technology still a work in progress, experts are looking at other technologies like hydrogen fuel cells and metal-air battery to replace lithium-ion batteries. Alternative technologies like hydrogen-spiked compressed natural gas (CNG) reduce emissions by BS IV engines to BS VI levels.
So what is the way out until the transition to EVs is complete? One possible solution for IOC’s Singh is hybrid cars. “I believe the transition is something in between which is hybrid, a car that runs on both gasoline and diesel along with a small battery,” says Singh. In the case of hybrids, the battery automatically charges even when the gasoline engine is functioning and also when a car brakes. Hence, there is no need to charge cars or set up nationwide charging stations immediately Hybrid cars will not only remove “range anxiety” among customers but also substantially bring down fuel consumption or operating costs. They are also more fuel efficient because the battery powers the engine when you start the car or when you accelerate, which is when a car guzzles the maximum amount of fuel. And when a car is cruising at a certain speed, the gasoline engine takes over. “Hybrid cars can bring down fuel consumption by as much as 60% compared to a car running on an internal combustion engine because they are 40% more fuel efficient,’’ says Singh.
Hybrid cars will be more expensive than conventional cars because they require both an internal combustion engine as well as a small battery. But the battery is one-fourth the size of an EV battery, making hybrid cars much cheaper than EVs. “Hybrid cars in a price-sensitive country like India will be driven by consumer demand because they are less polluting than conventional cars, provide refuelling comfort across the country and savings in the long term because of higher fuel efficiency,’’ adds Singh.
There are three kinds of hybrid vehicles in the world today. First, ordinary hybrids where the battery comes into play only when the fuel requirement is the highest. Two, smart hybrids where the vehicle can run either on gasoline or diesel or just on batteries for some distance. And finally, you have plug-in smart cars where the batteries have to be charged at stations. Auto companies like Maruti, Mahindra, and Hyundai have either developed or are developing hybrids cars, especially simple hybrids. Mahindra’s e-Verito sedan is a perfect combination of electric and conventional cars. Similarly, the latest entrant into the market, MG Motor India’s Hector SUV is a hybrid priced at ₹15.88 lakh as is the Toyota Camry hybrid priced at `37.50 lakh.
Experts say the government should focus on the larger goal of cutting down environmental pollution instead of the right technology for future vehicles. It should leave both car manufacturers and consumers to find their own ideal solutions in a world of constant change and disruption.
This was originally published in the September 2019 issue of the magazine.
