4 Oct 23

Can global rivalry fire up the Indian electric passenger car market?

Can the convergence of global power with an Asian startup and a local commercial vehicle giant in India stop the stagnation in the electric four-wheeler market? 

India is a haven for two-wheelers and three-wheelers, which are turning into electric rapidly, as over half of the three-wheeler registrations in 2022 were electric, according to the International Energy Association (IEA). The emerging rivalry from the global EV makers is only about to get more fierce by the domestic push, aiming to turn India into a new global EV hub. 

The two-wheeler sales in India were around 20 million in pre-pandemic years and dropped to about 15 million in the post-pandemic period. The awareness of climate change, rising fuel prices and increased foreign direct investments have become three essential factors in changing the urban mobility concept, resulting in a slight shift by July 2023, as two-wheeler sales dropped by 7.2% while four-wheeler sales increased by 2.6%. 

Just like in Turkey, Tesla is expected to spark the dynamics in the electric passenger car market in India, as the government is preparing to cut the high import duties to attract the top all-electric car manufacturer of the world, along with other major brands. Following the productive talks with the Indian government, Tesla unveiled plans to open a factory in India to produce low-cost EVs for around $24,000 for the local market and to export.

Surprisingly, the main rival of Tesla in India is expected to be Vinfast. The Vietnamese EV maker became the third most valuable automaker in August after debuting on Wall Street (Tesla and Toyota hold first and second place, respectively). Planning to tempt Indian consumers through dealers, Vinfast aims to sell only 50,000 EVs in 2023 compared to Tesla's 1.8 million. The sales of Vinfast were just 7,200 in 2022. Yet, India appears to be the perfect growth market for VinFast, which plans to enter the Indian market with two or three electric SUVs in 2024, followed by a full-size sedan. 

Through the new incentives, the Commerce Ministry of India wants to reach technical know-how and benefit from the economies of scale of new technologies, as India needs to advance EV battery production. Tesla also plans to almost double the component sourcing from India in 2023, up to $1.9 bn from $1 bn in 2022. India is about to become the second Asian country after China to have a Tesla plant, bringing the long-desired innovation and R&D to the country. The countries where Tesla produces vehicles and vehicle components are the US, Canada, Germany, the Netherlands and China. 

Local brands are joining the competition

Log9 Materials, an Indian nanotechnology company, reasons the lack of access to technology, particularly in lithium-ion batteries, is keeping the EV costs high and the adoption rate low. Therefore, India relies primarily on China to import lithium-ion cells. 

Over a million EVs were sold in India last year, two-wheelers representing 63%, three-wheelers (mainly auto rickshaws) 32%, and four-wheeler EVs only 4%. Other than technological gaps and high costs, India suffers from a lack of charging infrastructure. Yet, the recent investments and government incentives aim to push back any barrier in the EV market. 

Lack of clean energy, charging infrastructure, battery technology, and resistance to change have kept EV sales only at 2% between January and July 2023. The struggle with electric passenger cars results from the low involvement of foreign brands that prefer sleep mode, like Hyundai and Honda, while the largest automaker in India, Maruti Suzuki, is planning to introduce the first EV models in 2031. By that year, the company aims to reach 60% of sales from all-electric, 25% from hybrid, and 15% from alternative fuel vehicles. 

Chinese brands are dealing with other problems. BYD abandoned a $1 bn investment for manufacturing EVs with the joint venture partner Megha Engineering and Infrastructures this year. Various sources say the Indian government rejected the proposal on security concerns. Great Wall Motors had to abandon another $1 billion investment in 2022, including acquiring the General Motors (GM) factory in Pune, owned by MG Motor India. The rejection of both investments is tied to a border clash between the two countries' armies in 2020. 

Eventually, eyes are now on Tesla and VinFast, the former defied by the electric SUV manufacturer Mahindra Group. Mahindra Group has around 50% share in the light commercial vehicle (LCV) market and raised $145 million from Singapore's state-owned Temasek to improve the EV unit in exchange for 3% of its stakes. "Not fazed" by Tesla's expected entrance to the Indian market, Mahindra Group is confident in the LCV segment, planning to have e-SUVs around 20%-30% of total sales by 2027.  

India's goal of EV mix 

According to consulting firm Arthur Little, EV sales in India will cross 10 million units by 2030, and the adoption rate will surpass 30% in different vehicle classes. 

The Indian government has an ambitious target for 2030, and the electrification targets for the vehicle segments are as follows: 

Buses: 100%
Commercial vehicles (CVs): 70%
Private cars: 30-70%
Two and three-wheelers: 80% 

To that end, the Indian government has already introduced several programmes, including the National Electric Mobility Plan (NEMMP), to reduce dependency on crude oil. Another is the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, to end in 2024. The Finance Ministry also reduced the customs duty and taxes in 2023 to support domestic lithium-ion battery production. 

Electrification is critical for India, the largest third oil importer globally (after China and the US), and the country holds great potential for development in renewable energies along with all EV segments. 

Much is needed to tempt many more brands to become a part of the competition in the Indian electric four-wheeler market. Yet, being the world's top populated country, a significant shift in oil consumption in India would turn the tide in the global energy market, further pushing innovation and investments towards new energies. 

The main image shows a VinFast LUX SA2.0 in the assembly line, courtesy of Shutterstock, 2072857997.

Authored by: Mufit Yilmaz Gokmen