Why India Wants Hybrids, Not EVs

NEW DELHI-BASED Amit Sharma test-drove at least 30 passenger vehicles with different powertrains before shifting from his diesel car to a strong hybrid in November last year. Considering the wide range of powertrains in the market, it was not an easy decision for him. But Sharma says Grand Vitara strong hybrid satisfies his penchant for exploring new technologies while retaining the comfort of the internal combustion engine (ICE).

Sharma is not an exception. Several buyers of hybrid vehicles Fortune India talked to say they are a stepping stone to new technology before transitioning to a full electric vehicle (EV). The trend is getting reflected in sales of models such as Maruti Suzuki Grand Vitara, Toyota Urban Cruiser Hyryder, Honda City Hybrid, Maruti Suzuki Invicto and Toyota Innova Hycross. Overall market share of hybrid vehicles rose from 0.5% in 2022 to 2% in 2023, according to industry data. In fact, hybrid vehicle sales surpassed EV sales at the fag end of 2023. In September, October and November, hybrid vehicle sales stood at 8,529, 8,673 and 7,024 units, respectively. EV sales were 7,658, 7,024 and 6,763 units, respectively, during these months. This despite hybrids being more expensive than EVs. For example, the best-seller Grand Vitara strong hybrid costs ₹20.93-22.66 lakh ex-showroom in Delhi, while Toyota Urban Cruiser Hyryder costs ₹18.69-20.19 lakh. Maruti Suzuki Invicto costs ₹25.03-28.70 lakh and Toyota Innova Hycross ₹25.72 lakh-30.04 lakh. In comparison, Tata Nexon EV costs₹14.49-19.29 lakh and Tata Tiago EV ₹7.99-11.89 lakh.

More Demand, More supply

Experts say poor charging infrastructure and range anxiety are main reasons people are opting for hybrids over EVs. "Sales growth depends on multiple factors. One is demand and supply. The current momentum is benefiting from strong demand and sufficient supply as we see more and more manufacturers launching full hybrid vehicles," says Atul Jairaj, partner, Deloitte India. Another factor fuelling demand for hybrid vehicles is long waiting period for EVs, says Jairaj. "The trend will continue at least in the near future," says Jairaj.

Notably, as consumer preference shifts from fossil fuel vehicles, several manufacturers who were earlier not keen on hybrids, are changing track. One example is South Korean automobile manufacturer Kia. The maker of Sonet and Karens has already introduced a hybrid in South Korea. It plans to launch a Kia hybrid in 2025.

As automakers experiment with technologies, Jairaj says the domestic automobile industry will have a good mix of different powertrains. "Some original equipment manufacturers may already have global capability in hybrids, so it may be far easier for them to bring those to India. There may be others who have probably invested in EV technology from ground up; they probably may find a sweet spot in EV itself. We believe all these will coexist. One technology will not completely wipe out the other. We are still going to have 80% non-EVs by 2030 as per projections," says Jairaj. "The comparison between hybrids and EVs is not very consequential. What matters far more is that we are trying to minimise carbon emissions through new technologies," says Rahul Bharti, executive director, Corporate Affairs, Maruti Suzuki. He says even with a projected 25-30% EV penetration in the next seven years, a huge majority of cars sold will be ICE cars. "The question is- Can we convert these ICE vehicles to Hybrids? Because hybrids reduce CO₂ by atleast 30% and increase energy efficiency up to 44%. EVs plus Hybrids will together help India achieve CO₂ reduction and oil import reduction faster," says Bharti.

Gamechanger for Industry

India is not a one-off case. Hybrid sales are picking up in other markets such as U.S. and China, too. In 2023, hybrid sales surged 76% in U.S., according to a report by Fortune. The annual global automotive customer 2023 survey by Deloitte found that some urban highly developed markets have a higher proclivity towards hybrids instead of EVs. Reasons could be poor charging infrastructure and range anxiety.

"U.S. and China are consistently seeing a very sharp increase in demand for hybrids, especially strong hybrids. Even in last two months, demand for hybrids has outstripped other technologies," says Vikram Gulati, EVP & country head, Toyota Kirloskar Motors.

Notably, India's tryst with hybrids dates back to more than a decade-and-a-half when Honda launched City Hybrid in 2008. The strong hybrid failed to gain traction due to its price tag. There have been a lot of changes since then. One is the global mandate for net-zero carbon emissions by 2070 a key part of which entails a shift from fossil fuel to zero polluting vehicles. Automakers, running against time for this transition, are working on a range of technologies such as EVs, ethanol, hydrogen and flex-fuel, among others. "Hybrids reduce CO2 by at least 30% and increase energy efficiency up to 44%," says Bharti. Hybrid is also touted as the first step towards electrification. "It should be a game changer because electric cars have challenges such as range anxiety and battery performance can vary upon traffic conditions. But hybrid has a self-charging mechanism. So, with hybrids, customers enjoy the best of both worlds," says Kunal Behl, Vice President-- Marketing and Sales, Honda Cars India Limited.

According to industry leaders, increase in use of hybrid powertrains will help EV makers too due to common parts such as motors, batteries, controllers and high voltage cabling. "Investments for manufacturing these parts at scale can be much more rapid and bigger, lowering cost," says Toyota's Gulati.

Strong Hybrids Gain Momentum

Hybrid vehicles are divided into mild hybrids, plug-in hybrids and strong hybrids. As the name suggests, mild hybrids such as Maruti Suzuki Ciaz, Maruti Suzuki Ertiga and Maruti Suzuki XL6 have a conventional petrol or diesel engine with a low voltage battery and an electric motor. They cannot run solely on electric power as their battery cannot do the heavy lifting. In contrast, strong hybrids have a much larger battery that can run the car on its own. Gulati of Toyota says a strong hybrid vehicle can cover 60% distance in electric mode. "There is no range anxiety. As compared to EVs, strong hybrids have smaller battery packs, leading to a more affordable price," says Gulati. A strong hybrid vehicle can have fuel efficiency of 35-40%. Notably, over past several months, strong hybrid vehicles have gained popularity in the domestic market. Maruti Suzuki is looking at 25% strong hybrid penetration by 2030. Plug-in hybrid electric vehicles, whose popularity continues to be at the thin end of the spectrum, use lithium-ion batteries to power an electric motor, whereas another fuel such as petrol powers the ICE. Experts, however, say a lot more can be done to increase the acceptance of hybrid vehicles.

Tax Rationalisation

According to industry leaders, one of the factors that can lead to mass adoption of hybrids is tax rationalisation. At present, hybrid vehicles, which are usually priced in the premium range of ₹15-25 lakh, attract 43% tax, as per the GST (Goods and Services Tax) Council. Of this, GST is 28% and cess is 15%. ICE powertrain vehicles are taxed at 48%, whereas electric vehicles attract 5%.

Toyota, Maruti Suzuki and Honda have been demanding GST concessions for hybrid vehicles for past few months. According to the three, manufacturing cost of a hybrid vehicle is more than that of a pure petrol or diesel vehicle. "The 1% and 2% additional tax rate, when applied on a technology (hybrids) whose manufacturing cost is much higher — as much as ₹2.7 lakh or more — translates into much higher taxation in rupee terms, for a better and cleaner technology which is much more useful for the country as compared to pure gasoline technology," says Gulati.

"So, to allow consumers to make a more environment-friendly decision, we feel taxation on green technologies should be lesser than that on pure petrol and pure diesel models," he adds. Honda's Behl says if automakers get tax relief, consumers will find it more convenient to go for hybrids.

Base price of petrol and diesel powertrains is lower as hybrids have complexity of two powertrains and battery packs, says Jairaj. "In design, there is complexity, so hybrids will be comparatively more expensive anyway, even without the GST. If you add additional GST, pricing of hybrid vehicles goes to a completely different level. So, if we want consumers to move from ICE to hybrid, we need some of the compensation to be revisited," says Jairaj.

That will be a truly revolutionary moment for hybrids.