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The Economics of Electric Vehicles in India

July 2020

Read Time: 5 minutes

Despite being in existence even before ICE (internal combustion engine) vehicles and being fundamentally superior to them, the only reason EVs are not mainstream yet is – economics! For a comparable performance, EVs were significantly more expensive than their ICE counterparts. Battery of an EV constitutes up to 35% of a vehicle’s cost, and  battery costs have come down by 85% in the past decade. At the current battery prices, the upfront cost of EVs is still higher than ICE vehicles, but in many use cases the Total Cost of Ownership (TCO) is lower and close to breakeven.


India is a unique market for EVs. 85% of ICE two-wheeler (2W) market and 78% of ICE four-wheeler (4W) market in India is concentrated at less than INR 90,000 and less than INR 1 million price points respectively. It is difficult to offer an electric vehicle with comparable performance in these price ranges at current battery prices. While the upfront cost of EVs is higher, their operating cost is significantly lower. And hence Total Cost of Ownership or TCO is an important aspect of “EV purchase decision.”


Each vehicle category (2W, 3W, Private Vehicle, Commercial Vehicle) and each end use case (Retail, Commercial) is differently suited for electrification and the TCO equation also changes significantly. 


Two Wheelers

E-2W industry in India can be broadly segment into three categories – Low Speed (with top speed up to 25 Km/hr), Medium Speed (~40 Km/hr) and High Speed (60+ Km/hr). Most of the market is today concentrated in the low and medium speed categories because they fit within the mass-market price points and compare favourably on TCO as compared to the high-speed segment.


TCO for EVs for low/medium speed scooters is 25-40% lower vis-à-vis the entry range ICE 2Ws for a retail use case (20 Km/day). On the other hand, high speed e-scooters and e-motorcycles have a 15-20% higher TCO as compared to mid-range (125 CC) ICE 2Ws, ex subsidy benefit. The TCO breakeven is achieved for a high-speed e-2W at about 40 Km/day usage. 


The commercial use case of e-2Ws makes better economic sense. An e-2W offers 10-40% lower TCO at 60 Km/day usage (depending upon speed specs). Today, commercial customers buy mostly pre-owned vehicles. A medium speed e-2W still offers a 15% lower TCO than a pre-owned ICE 2W on account of very low fuel and maintenance cost.


E-Ricks

E-Ricks have perfectly catered to the need for cheap last mile connectivity. The E-Rick market in India is close to 0.7 million units. Currently, 80% of this market is unorganized and is based on Lead Acid batteries. The shift to Li-ion is inevitable and is beginning to happen. Li-ion based E-Ricks have achieved parity with Lead Acid variants in TCO terms. With benefit of FAME-II subsidy, TCO for Li-ion variants is 10% lower than Lead Acid ones. This TCO benefit is without taking into consideration other benefits of Li-ion such as lower charging time and minimum range deterioration over battery life (both these factors lead to lower down time during the day for E-Rick drivers).


E-Autos

E-Autos come with a larger battery (~8 kWh) and hence, are more expensive in terms of upfront cost comparison to ICE autos. However, on a TCO basis, for an average daily use case of 100 Km, an E-Auto’s TCO is about 15% lower than an ICE Auto. Even without taking into consideration the FAME-II subsidy benefit, e-Auto offers a lower TCO compared to a CNG based ICE Auto also.


Passenger Cars

At the current battery prices, it is not possible to offer an electric car with good performance in the Sub INR 1 million price range – which is the core of the current market. Thus, barring the early EV models (Verito and Tigor), electric cars in India have been launched in mid-premium price range (Nexon, Kona, ZS). Despite the higher price, these models fail to offer a lower TCO. ZS/Kona’s TCO is about 10% higher than their ICE counterparts. Nexon comes closer to a TCO breakeven with just 2% higher TCO compared to its ICE counterpart. The key reason for an unfavourable TCO in retail use case is lower asset utilization ~ (30 Km/day).


The commercial use case for e-4Ws offers TCO advantage. For an average daily use case of 120 Km, TCO for an e-4W is 12% lower than ICE 4W. Especially in cities with high traffic, the e-4W TCO becomes even more attractive as unlike the ICE where mileage drops due to engine idling in traffic, an EV is able to conserve energy through regenerative breaking.


Commercial Vehicles

Buses are expected to lead the EV adoption in the commercial segment purely driven by a push from the policy makers. Due to the extremely large batteries (200 kWh), the TCO parity for buses in still far away. TCO of a city e-bus is 40% higher than a diesel city bus. The FAME-II subsidy covers for this differential in TCO and hence enables a breakeven with its ICE counterpart.


In terms of TCO, EVs have begun to make sense in the Indian market. In a recently published Avendus report: Electric Vehicles - Charging Towards a Bright Future, we have laid down a comprehensive analysis of the EV opportunity in India. You can download the report here to go through the detailed TCO calculations and also other aspects of the EV industry in India and globally.

Author: Koushik Bhattacharyya - Director and Head - Industrials

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