The Union government’s push for electric vehicles (EV) in the Budget and the Economic Survey may adversely impact the Internal Combustion Engine (ICE) auto industry, which is already under stress, in the medium to long term. The two wheeler segment could be affected in the immediate future.
The tax benefits, GST rate reduction and the mammoth plan to make India the hub of EV manufacturing as well as elaborate measures for charging infrastructure through tax sops makes a strong case for EVs, but unless credible players come out with viable products, the EVs will remain a distant dream.
“The government has provided benefits to the EV industry both directly and indirectly. There is no import duty on components and batteries. We all have to see how it pans out,” said Jinesh Gandhi, Auto Analyst, Motilal Oswasl Financial Services Ltd. None of the Indian OEMs [except Hyundai India] has developed any reliable solution. Currently, the cost difference between an ICE vehicle and an EV is very high. The budgetary sops will make it cheaper by ₹50,000, but that is not convincing enough for someone to buy an EV at a time when there is no clarity on the charging infrastructure, Mr. Gandhi added.
‘BS-VI will cut emissions’
Besides, one needs to consider the impact the traditional industry will have to take. “The whole ecosystem has to be reviewed. The auto industry is a large employer and job creator in India. Besides, emissions will reduce much after BS-VI is rolled out,” he added.
According to analysts, EV is a step in the right direction but a policy should evolve over a period of years rather than everything changing over night. To promote fleet services, the government provides subsidy under FAME, but at the same time it is now promoting personal transport through tax benefits for purchase of personal EVs. “There is a conflict here. So there is ambiguity in terms of policy,” an analyst said.
The automotive industry must restructure its business and seriously rework its strategy right from the product plan to how supply chains must develop in order to cater to the government’s clear direction on increasing EV penetration, said Vinodkumar Ramachandran, partner and head, automotive and industrial manufacturing, KPMG in India. “This is a huge shift in technology and several component industries will be impacted. There will also be a fundamental rethinking on the retail model since EVs are not maintenance intensive. The implications will be played out in the next five years and winners will be ones who are able to adapt to this shift in technology,” he said.
According to Mudasar Mohamed, COO, Ezyhaul which provides logistics solutions to large companies, EVs will play a big part of in the future. “The traditional auto sector will need to develop clear strategies on how it wants to partake in this impending revolution - auto manufacturers will need to either adapt or fall behind.”
The EV may be the future, but the automotive sector is currently undergoing one of its worst phases. Sales are dropping for the last six to nine months. As per June 2019 sales data by the Society of Indian Automobile Manufacturers (SIAM), auto companies sold 16.28% less passenger vehicles as compared to June 2018. There has been a 23.39% drop in the same of commercial vehicles.
