Manufacturing of Electric Vehicles
Manufacturing of Electric Vehicles
Business Model Description
Manufacturing units for electric vehicles across 2/3/4 wheeler passenger segments and EV buses, which would include manufacturing of vehicles by assembly of EV components, thereby enabling users to enjoy lower operating costs.
Expected Impact
Reduction in carbon emissions by switching transportation dependence from oil to clean energy based transport such as Electric Vehicles and increase domestric production of clean energy parts/equipment.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- India: Countrywide
Sector Classification
Renewable Resources and Alternative Energy
Development need
India ranks 9 in Climate Change Performance Index (3.1) and is one of the most vulnerable countries in the world to global warming.
It is also highly vulnerable to climate-induced natural disasters, that make communities vulnerable based on their socio-economic and geophysical characteristics.
Power generation from renewable energy sources in India reached 101.84 billion units in 2018 and 126.76 billion units in 2019. Going forward, renewable energy is expected to account for ~55% of the total installed power capacity by 2030 (3.3).
Nationwide lockdown created disrupted supply chains across sectors and intensified the urgency for India to become self-sufficient to meet its energy needs and reduce its dependency on import of crude oil for generation of electricity, as well as transport facilities consumption.
Policy priority
India plans to add 30 GW of renewable energy capacity along the desert region on its western border, covering the states of Gujarat and Rajasthan.
The Delhi government has decided to shut down the thermal power plant in Rajghat and plans to develop it into a 5,000 KW solar park.
A new Hydropower policy for 2018-28 has been drafted for the growth of hydro projects in the country.
The Government of India has announced plans to implement a USD 238 million National Mission on advanced ultra-supercritical technologies for cleaner coal utilisation.
Gender inequalities and marginalization issues
As per SDG India Index report by Niti Aayog (3.2a), 99.99% (3.2b) households have access to electricity and 17 States and all UTs (except Lakshadweep) had shown substantial progress in respect to achieving SDG 7 (Affordable and Clean Energy), resulting in a cumulative score of 70 on 100 for India for SDG 7.
Women benefit from clean energy used for cooking as it helps them save the time spent gathering dirty fuels such as firewood or cow dung, and reduces exposure to indoor air pollution (responsible for 3.8 million premature deaths a year). (8.34)
Investment opportunities introduction
The Government of India (GoI) has set a target to achieve renewable energy capacity of 175 GW by 2022 and 450 GW by 2030. As of 30 April 2020, India’s installed RE capacity stands at 87.26 GW (3.7), which includes 34.81 GW of solar, 37.74 GW of wind, 9.86 GW of biomass and 4.68 GW of small hydro. To achieve its target of 175 GW of renewable energy capacity by 2022, the government has estimated an additional investment requirement of USD 100 billion over the course of the next 3 years (3.8), which would require increased capital inflow from both Indian and international investors. As per Foreign Direct Investment (FDI) Policy, up to 100% FDI is allowed under the automatic route for renewable energy generation and distribution projects subject to provisions of The Electricity Act, 2003 (3.9).
Key investment deals in Indian RE sector amounted to USD 8.4 billion (3.10), of which 48% was in generalised renewable energy, 41% was in solar, 10% was in wind, while 1% was for storage or solar pumps.
Key bottlenecks introduction
In India, power demand has reduced by 25-30%. This decline in demand coupled with a reduced collection of payments and slow economic recovery will adversely impact already stressed Distribution Companies (DISCOMS) by creating a cash gap of approximately USD 5 billion. (3.12)
Alternative Energy
Development need
Being home to 14 out of the 20 most polluted cities in the world, the challenge posed by pollution demands immediate attention in India. (3.2a)
Additionally, transition to Electric Vehicles (EVs) also has the potential to significantly cut India’s import bill for crude oil which stood at nearly USD 85 billion in 2020 (3.6). By December 2019, close to USD 40 billion has been invested in companies toward building solutions for the electric vehicles sector across the globe. India accounts for merely ~1.6% of this. (3.6)
Policy priority
The Delhi government released the draft “Delhi Electric Vehicle Policy 2020,” which aims to increase the market share of battery-electric vehicles to 25% of all new vehicles by 2024. (9.13)
Gender inequalities and marginalization issues
Electricity being a key ingredient for any modern production infrastructure, gaps in energy supply often act as a barrier to productive investments in rural and semi-urban areas. Distributed renewable energy and cleantech solutions can effectively bridge such energy gaps in an environment-friendly way. This facilitates local value addition by creating more productive investment opportunities, specifically in micro-enterprises, while also creating demand for skilled and semi-skilled manpower. (3.13) Making such shifts will align with COVID-19 measures announced by GoI to spur growth of MSMEs to improve domestic manufacturing and production capacities.
Investment opportunities introduction
Electric vehicle (EV) market in India is estimated to be a USD 7.09 billion opportunity by 2025, with two and three-wheelers segment expected to drive higher electrification of the vehicles in the medium term in the wake of COVID-19. (9.3)
Key bottlenecks introduction
India’s dependence on import of battery storage equipment and permanent magnets for electric car motors intensifies the need for strengthening domestic manufacturing of energy equipment. (9.14)
Fuel Cells and Industrial Batteries
Pipeline Opportunity
Manufacturing of Electric Vehicles
Manufacturing units for electric vehicles across 2/3/4 wheeler passenger segments and EV buses, which would include manufacturing of vehicles by assembly of EV components, thereby enabling users to enjoy lower operating costs.
Business Case
Market Size and Environment
> USD 1 billion
Electric vehicle (EV) market in India is estimated to be a USD 7.09 billion opportunity by 2025, with two and three-wheelers segment expected to drive higher electrification of the vehicles in the medium term in the wake of COVID-19. (9.3)
Overall, electric vehicles sales (excluding e-rickshaws) in India witnessed a growth by 20% to reach 156,000 units in 2020 driven by two-wheelers. (9.6)
> By 2025, EV Penetration in 2/3/4 wheeler and bus segments is expected to be as follows: (9.3) - Two-wheeler segment: expected to be ~9% - E-auto category: expected to be ~20% - Electric four-wheeler segment: expected to be ~2% - Light commercial vehicles (less than 3.5 tonnes) segment: expected to be ~4% - EV Bus category (under the public transport system) is expected to touch ~13%
Indicative Return
10% - 15%
In the global scenario, an original equipment manufacturer (OEM) could expect to break even in cost with EVs (compared to ICEs vehicles) by 2025, and thus, achieve a profit margin of 2-3% per vehicle. (9.9)
Ather Energy Private Limited's (manufactures the electric scooters) earnings before net interest, taxes and depreciation and amortization (EBITDA) for 2020 decreased by -91.83% over the previous year. At the same time, it's book networth decreased by -0.49% (9.10). It raised USD 51 million in 2019 and announced its plans to set up a new manufacturing facility as well as charging infrastructure in multiple cities to attain annual sales of a million units by 2025 (9.11)
Investment Timeframe
Medium Term (5–10 years)
In the global scenario, EVs have the potential to reach cost parity with and become equally—or even more—profitable as ICE vehicles by around 2025. (9.9)
Experts predict that start-ups in this space will need 3-5 years to find stability, ward off major competition and start becoming core players in this space. Investment gestation period for EVs is expected to be longer (~8-10 years) than that for ICEs (~3-6 years). (3.6)
Early signs of a strategic investment in Ather by Hero or in Yulu by Bajaj could hint towards acquisitions eventually becoming a theme in this space. Component manufacturers can have a profitable growth journey of their own or eventually become targets for auto part suppliers. (3.6)
M&A and fundraising activities are likely to pick up in the medium and long term, considering that emerging EV start-ups (namely, Ather Energy or Ola Electric Mobility) in this space are crucial for developing the EV sector in India.
Furthermore, with GOI’s push towards promoting the EV segment and contributing to SDG 13 (Climate Action), the valuation of EV start-ups could become more attractive in the short term compared to pre-COVID-19 era. (9.12) However. for any exit to materialise, EV start-ups will first need to prove themselves through differentiated technology and validation through revenues. (3.6)
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Capital - CapEx Intensive
Market - High Level of Competition
Impact Case
Sustainable Development Need
As per Niti Aayog, electric vehicles are a sunrise opportunity as India’s total vehicles account for over 72% two-wheelers (implying a significant scope for conversion to electric vehicles). (9.1)
According to a recent study by WHO, India is home to 14 out of 20 most polluted cities in the world. Electric vehicles (EVs) can improve that scenario by reducing local concentrations of pollutants in cities. (9.2)
India is heavily dependent on oil imports, with a USD 112 billion oil import bill in 2019 (9.3), 80% of which is used for transport fuel. The demand for transport fuel is set to grow as a rapidly urbanizing population demands greater intra-city and inter-city mobility. (9.2) As per Niti Aayog, India has over 170 million two-wheelers. If we assume that each of these vehicles uses a little more than half a litre of petrol per day or about 200 litres per year, the total amount of petrol used by such vehicles is about 34 billion litres. At ₹70 per litre, this would cost about USD 32 billion. Even if we assume that 50% of this is the cost of imported crude (as tax and other may be 50%), one may save USD 16 billion worth of imported oil. (9.2)
India represents the fourth-largest automobile market in the world and the second-largest two-wheeler market with ~20 million units sold annually thus signalling a competitive space fro EVs. (9.3)
An estimated 74,000 premature deaths were attributable to transportation emissions in India in 2015. This represents a 28% increase in annual transportation-attributable deaths in India compared with 2010. (9.5)
New Delhi accounted for 2.5% of transportation-attributable deaths from PM2.5 and ozone pollution in India in 2015. Transportation accounted for just over one-tenth (11%) of all deaths from air pollution that year in New Delhi. (9.5) On-road diesel vehicles contributed 60% of the transportation health burden in New Delhi, followed by non-road mobile sources, including agricultural and construction equipment and rail (24%); on-road non-diesel vehicles (13%); and international shipping (1%). (9.5)
With the rapid increase in global temperature, there is a pressing need for a reduction in the use of fossil fuels and the associated emissions. By 2030, India targets to cut its Green House Gas (GHG) emissions intensity by 33-35 per cent. (9.2)
Gender & Marginalisation
Electricity being a key ingredient for any modern production infrastructure, gaps in energy supply often act as a barrier to productive investments in rural and semi-urban areas. Distributed renewable energy and cleantech solutions can effectively bridge such energy gaps in an environment-friendly way. This facilitates local value addition by creating more productive investment opportunities, specifically in micro enterprises, while also creating demand for skilled and semi-skilled manpower. (3.13) Making such shifts will align with COVID-19 measures announced by GoI to spur growth of MSMEs to improve domestic manufacturing and production capacities. Women benefit from clean energy used for cooking as it helps them save the time spent gathering dirty fuels such as firewood or cow dung, and reduces exposure to indoor air pollution (responsible for 3.8 million premature deaths a year). (8.34)
Expected Development Outcome
The business model under this IOA has the potential to reduce primary oil consumption in transportation. Facilitate customer adoption of electric and clean energy vehicles. Encourage cutting edge technology in India through adoption, adaptation, and research and development. "
The business model under this IOA has the potential to Improve transportation used by the common man for personal and goods transportation. Reduce pollution in cities. Create EV manufacturing capacity that is of global scale and competitiveness. Facilitate employment growth in a sun-rise sector. (9.2)
Gender & Marginalisation
Primary SDGs addressed
7.2.1 Renewable energy share in the total final energy consumption
7.3.1 Energy intensity measured in terms of primary energy and GDP
9.4.1 CO2 emission per unit of value added
13.2.1 Number of countries with nationally determined contributions, long-term strategies, national adaptation plans, strategies as reported in adaptation communications and national communications
Secondary SDGs addressed
Directly impacted stakeholders
People
Planet
Indirectly impacted stakeholders
Public sector
Outcome Risks
This model can only be successful if the manufacturing of components can be done in India in a cost-effective manner and adequate charging infrastructure is installed across the country,
Demand-supply gaps and low volumes lead to the high cost of manufacturing EVs. EV’s battery, power electronics and motors cost ~6-7x that of an IC engine affecting the ex-showroom price. (9.22)
Impact Classification
What
Increase in usage of electric vehicles will lead to uptake of energy efficiency and affordable transportation solutions across all categories of consumers (including the underserved population).
Who
EV owners will benefit from lower running costs in comparison to costs incurred on ICEs. Commuters (including underserved population) will benefit from affordable public transport.
Risk
This model can only be successful if manufacturing of components can be done in India in a cost-effective manner and adequate charging infrastructure is installed across the country
Impact Thesis
Reduction in carbon emissions by switching transportation dependence from oil to clean energy based transport such as Electric Vehicles and increase domestric production of clean energy parts/equipment.
Enabling Environment
Policy Environment
The Delhi government released the draft “Delhi Electric Vehicle Policy 2020,” which aims to increase the market share of battery-electric vehicles to 25% of all new vehicles by 2024. (9.13)
In 2018, GoI launched “National E-Mobility Programme” to be implemented by Energy Efficiency Services Limited (EESL), with the aim to facilitate demand for EVs through greater public procurement. (9.4)
To develop and promote effective means of sustainable transport, GoI is taking crucial steps towards promoting electric mobility which includes the newly launched National Mission on Transformative Mobility and Battery Storage and the FAME-II Scheme. (9.14)
Government of India is targeting a fully electric fleet for public transport, including buses, taxis and auto-rickshaws under the second phase of FAME India scheme. Department of Heavy Industries (DHI) emphasised that public transport should be 100% electric, as it will help to reduce pollution to a great extent. (9.7)
Financial Environment
Financial incentives: The details of subsidy proposed under the second phase of the FAME-I program is as follows: (9.7) - Buses - USD 99,302 to USD 132,403 (60% of total cash) - Electric Taxi - USD 1642 (10-15% of total cash) - Electric Auto - USD 490 to USD 808 (20% of total cash) The department issued an Expression of Interest (EoI) inviting proposals from million-plus cities and special category states for multi-modal transport on October 31, 2017. Under this EOI, additional incentive was also proposed to augment charging infrastructure for public transport. (9.7)
Fiscal incentives: From August 2019, the GST Council reduced the tax rates on e-vehicles from 12% to 5% (9.6 and 9.1) in an attempt to induce demand for EVs. In the Union Budget 2019-20, the government proposed additional income tax deduction of ~USD 1986 on the interest paid on loans taken to purchase electric vehicles. (9.1) Certain parts of EVs have been exempted from customs duty to further incentivise e-mobility in the country. (9.1) FAME II (effective from April 2019) has allocated a budget of over USD 1.4 billion for offering upfront incentives for the purchase of EVs (USD 1.35 billion) and for supporting the deployment of charging infrastructure (USD 0.14 billion). (9.4 and 9.16) As per FAME data, total incentive amount disbursed till now amounts to USD 48 million for 280,000 vehicles. (9.17)
Regulatory Environment
Ministry of Heavy Industries (MoHI) supports RD&D in the automotive sector through the Automotive Research Association of India (ARAI). ARAI carries out research in fuel economy, emissions reductions, light weighting, biomass engines and electric vehicles (EVs), with public private funding. (9.4)
(Regulation): MoHI, Government of India has shortlisted 11 cities in the country for introduction of EVs in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The Government will also set up incubation centre for start-ups working in the EVs space. (9.6)
(Regulation): National Automotive Testing and R&D Infrastructure Project or NATRiP's proposal for “Grant-In-Aid for test facility infrastructure for Electric Vehicle (EV) performance Certification from NATRIP Implementation Society” under FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme was approved by Project Implementation and Sanctioning Committee (PISC) on January 03, 2019. (9.15)
Marketplace Participants
Private Sector
Investors: Hero Motorcorp invested USD 11 million in Ather Energy (9.18), Sachin Bansal also invested in Ather’s Series-C round of funding in 2019. (9.18). Corporations: Tata AutoComp Systems (the auto-components arm of Tata Group) entered a joint venture with Prestolite Electric to enter the electric vehicle (EV) components market. (9.6), MG Motor India plans to launch MG ZS EV electric SUV in 2020 and other affordable EVs by 2024. (9.6), BYD-Olectra, Tata Motors and Ashok Leyland will supply 5,500 electric buses for different state departments. (9.6), Ather Energy, Twenty-Two Motors
Non-Profit
LetsVenture, an online funding platform for start-ups has also launched LetsAccelerate’s EV Innovation Labs to help EV start-ups in India access resources to become investment and market-ready. (9.19) Looking to stimulate and strengthen the EV start-up ecosystem, incubator and accelerator Huddle and early-stage venture capital firm GrowX ventures have announced India’s first acceleration programme for EV start-ups. (9.19). General Motors and Airbus are part of the global Hydrogen Council which plans to push a transition to fuel cells. (9.20). Society of Manufacturers of Electric Vehicles or SMEV was started in 2009 as a registered association representing the manufacturers of electric vehicles and electric vehicle components in India. It provides a window to EV players and works closely with the Central and state governments to assist in the formulation of policies and processes supporting the EV ecosystem. (9.21)
Target Locations
India: Countrywide
References
- (3.1 https://www.climate-change-performance-index.org/country/india#:~:text=Donate-,India,Emissions%20and%20Energy%20Use%20categories. "3.2a https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf 3.2b https://saubhagya.gov.in/" 3.3 https://www.ibef.org/industry/renewable-energy-presentation 3.4 https://www.carbonbrief.org/analysis-indias-co2-emissions-growth-poised-to-slow-sharply-in-2019 3.5 https://energy.economictimes.indiatimes.com/energy-speak/the-future-of-renewable-energy-in-india/3016 3.6 https://inc42.com/resources/electric-vehicles-the-segment-of-choice-to-invest-in-2020/ 3.7 https://www.ibef.org/industry/renewable-energy.aspx 3.8 https://energy.economictimes.indiatimes.com/news/renewable/another-100-billion-investment-required-to-meet-175-gw-re-target-MNRE-secy/73806002 3.9 https://www.investindia.gov.in/foreign-direct-investment 3.10 https://psuwatch.com/india-36-gw-renewable-energy-target-450-gw-2030-ieefa 3.11 https://www.livemint.com/news/india/train-journeys-could-leave-zero-carbon-footprint-by-2030-here-s-how-11594684996911.html 3.12 https://energy.economictimes.indiatimes.com/energy-speak/renewable-energy-new-normal-and-impact-of-covid-19/4167#:~:text=are%20being%20observed.-,In%20India%2C%20at%20present%20power%20demand%20has%20reduced%20by%2025,40%2C000%20cr. 3.13 https://energy.economictimes.indiatimes.com/news/renewable/covid-19-re-look-clean-energy-for-resilient-india/75299079
- (9.1 https://auto.economictimes.indiatimes.com/news/commercial-vehicle/mhcv/5645-electric-buses-sanctioned-for-65-cities-kant/70434005 9.2 https://niti.gov.in/writereaddata/files/document_publication/EV_report.pdf 9.3 https://www.ibef.org/news/electric-vehicle-market-likely-to-be-rs-50000-crore-opportunity-in-india-by-2025-report 9.4 https://niti.gov.in/sites/default/files/2020-01/IEA-India%202020-In-depth-EnergyPolicy_0.pdf 9.5 https://theicct.org/sites/default/files/ICCT_factsheet_health_impact_airpollution_Delhi_20190705.pdf 9.6 https://www.ibef.org/industry/india-automobiles.aspx 9.7 https://india.uitp.org/articles/dhi-funding-pilot-electric-projects-11-cities 9.8 https://www.ergon.com.au/network/smarter-energy/electric-vehicles/benefits-of-electric-vehicles 9.9 https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/making-electric-vehicles-profitable# 9.10 https://www.tofler.in/ather-energy-private-limited/company/U40100KA2013PTC093769#:~:text=Ather%20Energy%20Private%20Limited%27s%20operating,91.83%20%25%20over%20the%20previous%20year.&text=It%27s%20authorized%20share%20capital%20is,capital%20is%20INR%2029.76%20lac. 9.11 https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/with-51m-raised-ather-plans-new-scooter-plant-and-charging-infra/articleshow/69608022.cms#:~:text=NEW%20DELHI%3A%20Electric%20scooter%20maker,in%20the%20next%20five%20years. 9.12 https://auto.economictimes.indiatimes.com/news/industry/indian-electric-vehicle-segment-might-continue-to-draw-investments-report/76508697 9.13 https://transport.delhi.gov.in/sites/default/files/All-PDF/Delhi_Electric_Vehicles_Policy_2020.pdfhttps://transport.delhi.gov.in/sites/default/files/All-PDF/Delhi_Electric_Vehicles_Policy_2020.pdf 9.14 https://niti.gov.in/sites/default/files/2019-12/SDG-India-Index-2.0_27-Dec.pdf 9.15 https://www.ibef.org/industry/automobiles-presentation 9.16 https://fame2.heavyindustry.gov.in/ 9.17 https://www.fame-india.gov.in/ 9.18 https://auto.economictimes.indiatimes.com/news/two-wheelers/motorcycles/hero-motocorp-invests-rs-84-crore-in-ather-energy/77144384 9.19 https://www.investindia.gov.in/team-india-blogs/startups-leading-path-electric-mobility-india 9.20 https://economictimes.indiatimes.com/industry/auto/auto-news/dream-or-nightmare-why-india-should-postpone-its-electric-vehicle-plans-for-ten-years/articleshow/69766788.cms?from=mdr 9.21 https://www.smev.in/ 9.22 https://www.financialexpress.com/auto/car-news/electric-vehicle-market-in-india-evolution-challenges-and-solutions/1738148/ 9.23 https://www.cars24.com/blog/advantages-and-disadvantages-of-electric-cars/ 9.24 https://vikaspedia.in/energy/energy-efficiency/electric-vehicles-in-india 9.25 https://indianexpress.com/article/india/centre-sets-target-to-cut-pm2-5-pm10-concentration-by-20-30-in-five-years-5532810/