Electric Vehicles in India: Challenges & Opportunities

TITLE Electric Vehicles: Challenges & Opportunities in India

YEAR January 2013

Lead authors : Samir Karnik, Nitin Sukh (Responsible Banking Team, YES BANK)
Contributors : Agneev Mukherjee, Sarobjit Pal, Akshima Tejas Ghate,
AUTHORS Sangeetha Ann Wilson (TERI BCSD)

No part of this publication may be reproduced in any form by photo, photoprint,
COPYRIGHT microfilm or any other means without the written permission of YES BANK Ltd. and TERI
BCSD.

This report is the publication of YES BANK Limited (“YES BANK”) & TERI BCSD and so YES
BANK & TERI BCSD have editorial control over the content, including opinions, advice,
statements, services, offers etc. that is represented in this report. However, YES BANK & TERI
BCSD will not be liable for any loss or damage caused by the reader's reliance on information
obtained through this report. This report may contain third party contents and third-party
resources. YES BANK & TERI BCSD takes no responsibility for third party content,
advertisements or third party applications that are printed on or through this report, nor
does it take any responsibility for the goods or services provided by its advertisers or for any
error, omission, deletion, defect, theft or destruction or unauthorized access to, or
alteration of, any user communication. Further, YES BANK & TERI BCSD does not assume any
responsibility or liability for any loss or damage, including personal injury or death, resulting
from use of this report or from any content for communications or materials available on this
report. The contents are provided for your reference only.
The reader/ buyer understands that except for the information, products and services
clearly identified as being supplied by YES BANK & TERI BCSD, it does not operate, control or
endorse any information, products, or services appearing in the report in any way. All other
information, products and services offered through the report are offered by third parties,
DISCLAIMER which are not affiliated in any manner to YES BANK & TERI BCSD.
The reader/ buyer hereby disclaims and waives any right and/ or claim, they may have
against YES BANK & TERI BCSD with respect to third party products and services.
All materials provided in the report is provided on “As is” basis and YES BANK & TERI BCSD
makes no representation or warranty, express or implied, including, but not limited to,
warranties of merchantability, fitness for a particular purpose, title or non – infringement. As
to documents, content, graphics published in the report, YES BANK & TERI BCSD makes no
representation or warranty that the contents of such documents, articles are free from error
or suitable for any purpose; nor that the implementation of such contents will not infringe
any third party patents, copyrights, trademarks or other rights.
In no event shall YES BANK & TERI BCSD or its content providers be liable for any damages
whatsoever, whether direct, indirect, special, consequential and/or incidental, including
without limitation, damages arising from loss of data or information, loss of profits, business
interruption, or arising from the access and/or use or inability to access and/or use content
and/or any service available in this report, even if YES BANK & TERI BCSD is advised of the
possibility of such loss.

YES BANK Ltd. TERI-Business Council for Sustainable
Development (BCSD)
Registered and Head Office
The Energy and Resources Institute (TERI)
9th Floor, Nehru Centre,
Core 6C, Darbari Seth Block, Habitat Place
Dr. Annie Besant Road,
India Habitat Center, Lodhi Road
Worli, Mumbai - 400 018
New Delhi - 110 003
Tel : +91 22 6669 9000
Tel : (+91 11) 2468 2100, 41504900
Fax : +91 22 2497 4088
Fax : (+91 11) 2468 2144, 2468 2145
CONTACTS Email : bcsd@teri.res.in
Northern Regional Office
Website : www.teriin.org/bcsd
48, Nyaya Marg, Chanakyapuri
New Delhi – 110 021
Tel : +91 11 6656 9000
Email : responsible.banking@yesbank.in
Website : www.yesbank.in

MESSAGE
The traditional approach of the banking sector to sustainability is often regarded as lacking in proactive
initiatives. However, several banks have recently adopted innovative and forward looking strategies to deal
with opportunities associated with sustainability. They have developed new products such as ethical funds
or loans specifically designed for environmental businesses to capture new market opportunities associated
with sustainability. This very joint endeavor between TERI BCSD and YES BANK to explore Electric Vehicles
as an option of sustainable mobility that has the capability to significantly lower emission levels including
carbon dioxide emissions which is an encouraging beginning.
Rapid urbanization, rising per capita incomes, growing aspirations of an expanding population and sprawling
cities have resulted in transport demand increasing at a rate much faster than the rate of growth of transport
infrastructure. Indian cities are witnessing an exponential increase in the use of personal transport and a
steady decline in the modal share of both public transport and non-motorized transport. There is a growing
realization, both internationally and nationally, that the current trends in urban transport are unsustainable
and should be arrested. Urban transport should move along a low carbon and sustainable pathway. Several
international initiatives like the SLOCAT (The Partnership on Sustainable, Low Carbon Transport), and major
events like the United Nations Conference on Sustainable Development, 2012 (Rio+20), etc. have
highlighted the challenges associated with meeting urban mobility demand in a sustainable manner. In India,
the National Urban Transport Policy, 2006 aims to move future transport development in Indian cities
towards a sustainable and low carbon trajectory. Current policy promotes investments in public transport
and non-motorized transport infrastructure so as to advance the agenda of sustainable mobility. While it
becomes important to plan for systems of public transport, and non-motorized transport for promoting
sustainable mobility, it is also critical to ensure that personal modes of transport i.e. cars and two wheelers
embody energy efficiency and low-carbon intensity. This is important because we are going to witness an
explosive increase in the number of personal vehicles in our country. It is therefore crucial that the new
vehicular fleet in the country produces low environmental impacts.

Electric vehicles, though not yet popular in India, are an important solution to addressing the issue of
vehicular pollution. The country has recently witnessed the unveiling of the National Electric Mobility
Mission Plan 2020 by the Hon'ble Prime Minister, Dr Manmohan Singh. This move is significant at this
juncture considering the country cannot continue its heavy dependence on personal modes, which run on
petroleum products (petrol and diesel) with implications for India's energy security and CO2 emissions. It is
important that we diversify our fuel mix in favour of clean fuels. Electrification of vehicles certainly offers
such potential provided the electricity is generated from clean sources of energy. Going forward, it is very
important that any plan for electric vehicles is implemented in an integrated manner in consonance with our
plans for electricity generation and distribution and urban infrastructure planning. Major R&D initiatives are
needed to ensure that the penetration of electric vehicles is accelerated. All key stakeholders including
industry, government, and financial institutions will have to work together in this endeavour.
I compliment YES BANK for undertaking this study and for publication of this Knowledge Paper.

Dr R K Pachauri
Director-General, TERI

FOREWORD
This well-researched knowledge paper advocates the incremental transition of private
transportation in India - from being driven by the internal combustion engine to electric drive
trains.
YES BANK and TERI BCSD are of the strong view that this revolution in Indian personal
transportation will open up significant business avenues, and corresponding financing
opportunities. It will also address the critical issues of India's long term energy security and
reduce the environmental impact of fossil fuel driven vehicles, though only at the tailpipe.
However, there are some ground realities in India and globally that will remain long term
challenges for the widespread uptake in electric vehicles (EV). The technology which makes
complete electric mobility possible and financially viable, from an Original Equipment
Manufacturers (OEMs) perspective, already exists in the Indian scenario. Technology
improvements in battery capacity, fast charging facilities and vehicle range are rapid and dynamic,
with many OEMS and other companies in the EV value chain already investing significant amounts
in research and development (R&D), and scaling manufacturing capacities. EVs have arrived
globally and most certainly in India with companies like Mahindra REVA championing the EV four
wheeler (4W) space and Hero Group dominating the EV two wheeler (2W) segment.
The rising price of crude in the international market has become an energy security concern for
the country. Are EVs the silver bullet to securing India's energy future and reducing carbon
emissions of its transportation sector? This is a difficult question to explicitly answer. While on one
hand, the mainstreaming of EVs will dramatically reduce India's reliance on imported crude oil, on
the other hand, EVs, if disruptively introduced, will be charged by India's crumbling and inefficient
electricity grid which is predominantly powered by imported coal. Therefore, whether EVs will
strengthen India's energy and climate security is a catch 22 question, in case the status quo
remains. The question then is - How do we change the status quo? For this, there is a need for a
comprehensive policy roadmap towards private vehicle electrification wherein the financial sector
and Government of India (GoI) play interdependent roles to develop critical and enabling EV
infrastructure and incentivize OEMs and organisations along the value chain, to innovate and
collectively work towards introducing EV 4W & 2W EV variants, thereby giving the consumer a
choice.
I firmly believe that the contents of this knowledge paper will provide important insights to policy
makers in achieving a smooth and incremental transition to EV's, thus ensuring India's long term
energy security.

Thank You.
Sincerely,

Rana Kapoor
Founder, Managing Director & CEO

Preface
The findings of this paper will be of particular interest to 3 key stakeholders: The financial sector, policy
makers and the automobile industry.
For the Financial Sector:
The premise of this paper is that the financial sector will not fund companies that fall in a value chain
whose risks and business models are not fully understood. Therefore the key objective of the paper is
to clearly outline the EV value chain, the perceived risks along the value chain and highlight some
financial tools and business solutions that could be modified specifically for de-risking and therefore
facilitate the financing of EV growth in India.
For the Indian Government and Policy Makers:
Our key insight emanating from this report is that the Indian customer does not need to be directly
incentivized by the Government of India (GoI) and State Governments to buy EVs, as is currently the
case. The Indian consumer is price, fuel economy and style conscious and will therefore appreciate the
long term savings of EV versus Internal Combustion Engine (ICE). In which case, growth of the EV
value chain must be fuelled by organic consumer demand, and not pushed by unsustainable
Government subsidies for consumers, to drive EV purchases. This would defeat the purpose of
reducing strains on India's Balance of Payments. Organic consumer demand can only be fostered by
the Government, working in collaboration with the private sector to invest in an economically enabling
environment for rapid EV adoption, which entails the following:
• Develop 'Clean & Energy Efficient fast charging infrastructure' – Consumers will not buy EVs if
they are unable to charge them whilst in urban transit. Range anxiety inhibits the consumer's
decision making process and this is well documented by numerous reports. Therefore, the
Government must invest in 'clean & energy efficient fast charging infrastructure' that will
perceptually give urban consumers the comfort in buying EVs. Clean & Energy efficient fast
charging infrastructure will comprise of, in a phased manner, smart grids and metering, renewable
energy (RE) feeds and fast charging ports. Smart grids will not only accommodate EV charging
point applications, but will also reduce energy wastage by the grid in general. EVs will not
mainstream in India until and unless primary yet significant GoI led investments are made firstly in
smart grid adoption, followed by plug in applications like RE feeds & fast charging ports. Direct
GoI investments and public private partnership (PPP) models can be explored accordingly to hive
off the financial investment component to the private sector.
• Financially incentivise Indian Banks to fund India EV OEM manufacturers, Battery R&D, Fast
charging R&D & Smart grid projects – Launch a Government sponsored fund, inviting applications
from commercial banks, specifically for low interest forward lending, partial project risk
guarantees and co-equity investments.
For Indian Automobile companies:
PRUDENCE - Innovate and take incremental steps towards full automobile electrification. Competition
in the Indian EV and hybrid market will transform the Indian consumer's perception in the years to
come where foreign competitors and early bird Indian companies will grab dominant 4W EV & 2W EV
market shares.

CONTENTS
1 Introduction: The Case for Sustainable Personal Transport in India 1
1.1 Energy Security 3
1.2 Climate Change 5
1.3 Road Transport Emissions in India 6
1.4 Trends in Personal Road Transport in India 7
1.5 Modal Shifts 9
2 Sustainable Personal Transportation 13
2.1 Technological Innovations in Low-Carbon Transport 14
2.2 Pathway to Zero-Emission Vehicles 20
3 The Electric Vehicle Value Chain 23
3.1 Raw Material Suppliers 24
3.2 Traditional Component Suppliers 25
3.3 Battery Manufactures & Suppliers 25
3.4 Original Equipment Manufacturers (OEMs) 26
3.5 Utilities 26
3.6 The Electric Vehicle Ecosystem 27
4 Policies Promoting Electric Vehicles in India 31
4.1 Initiatives by the Ministry of New and Renewable Energy 32
4.2 Initiatives in the 2011-2012 Budget 33
4.3 Initiatives by the Ministry of Heavy Industries 33
and Public Enterprises
4.4 Government Agencies to take up EV Mobility in India 34

CONTENTS
5 Development of EV Charging Infrastructure in India 37
5.1 EV Charging Infrastructure: Past Efforts 38
5.2 Comparison with Compressed Natural Gas (CNG) 39
Infrastructure
5.3 India's Power Sector 39
5.4 Smart Grids 41
5.5 Requirements for Smart Grid Deployment 43

6 Emerging Business Models 45
6.1 Direct Vehicle Sales 46
6.2 EV Leasing 47
6.3 Battery Leasing and Swap Schemes 47
6.4 Infrastructure Service Models 48
7 Analysis and Thought 51
7.1 Short Term Horizon 52
7.2 Long Term Horizon 52
7.3 Concluding Thoughts 54

Introduction:
The Case for
Sustainable Personal
Transport in India

Introduction: The Case for Sustainable
Personal Transport in India
“The mobility model we have today will not work tomorrow”
- Bill Ford, great-grandson of Henry Ford and Executive Chairman of the Ford Motor Company

India's population is expected to surpass that of China's in 2030, making it the most
populous county in the world. High economic growth rates and the impacts of
globalization have concentrated prosperity in urban centers resulting in sprawl and
auto-mobilization. Within 15 years the population residing in urban areas is expected
to double to over 700 million [1] due to distressed rural to urban migration and other
factors. This will place additional pressures on urban infrastructure, which is already
overburdened. Projections indicate that by 2021 India will have the largest
concentration of megacities in the world with a population exceeding 10 million. Out
of a total of 88 cities, with a population of more than half a million in 2011, only 28
have any formal public transportation system. In most cases, the existing public
transport systems are ageing and stretched beyond capacity, as the demand for public
transport services outstrips supply, both qualitatively and quantitatively.

As disposable income increases, a result of economic growth, those entering the
middle-class are able to afford and prefer personal vehicles, as it is a symbol of
upward social mobility, and also provides greater comfort, flexibility and convenience.
In the absence of proper planning measures, the dynamics between increasing
numbers of vehicles as well as a growing population wanting to use private vehicles
for transport are likely to pressurize transport infrastructure, leading to inefficiencies as
a result of infrastructural bottlenecks such as traffic congestion, gridlocks and slower
train speeds. This would result in higher traffic management costs and greater energy
consumption, therefore significantly increasing carbon emissions from transportation.

The growth in motor vehicles is much faster than the population and faster than the
GDP with 5% annual growth in motorcycles/scooter and 14% annual growth in cars
[2].

2 Electric Vehicles in India: Challenges and Opportunities

If current ICE uptake trends continue, developing countries like India are faced with unsustainable
futures that are likely to have negative triple bottom line impacts. Considering the stage of
economic development in India, the country has a unique opportunity to develop sustainably by
managing emissions growth, enhancing energy security and by supporting the creation of a world
class clean-technology industry. The time is ripe to explore a range of potentially promising
solutions to redirect the economy towards a path which is sustainable and secure.

1.1 Energy Security

Beginning with economic liberalization in 1991, the consistent growth and globalization of the
Indian economy thereafter, energy consumption in India has grown exponentially. Increasing
urbanization, infrastructural development and concentration of economic activities in certain load
centers have resulted in higher mobility fuelled by a rapid increase in number of vehicles and
distances travelled. The growing demand for energy is being addressed largely though oil imports,
where India is currently the 5th largest oil importer in the world. India simply does not possess
adequate oil reserves to meet current and future demand. 72% of the oil consumed in India in
2007 was imported and this is projected to rise sharply to over 90% by 2030 [3]. High oil prices
result in negative feedback loops that weaken stock prices and tighten fiscal conditions, thereby
depressing economic growth in the long term.

The growth of the Indian economy is impacted by the price of oil imports, which tends to be
extremely volatile and sensitive to economic and political shifts. As a result of the global
recession, oil prices rose to a record peak of INR 7 ,830 per barrel (USD 145) in July 2008 (Exhibit
1) and the Brent Crude oil price hit INR 5,400 per barrel (USD 100) on 31st January, 2011 due to
the political upheaval in Egypt [4]. The growth in demand for oil from BRICS (Brazil, Russia, India,
China & South Africa) nations and other emerging economies coupled with a decrease in the
discovery of new exploitable oil fields will push up oil prices up over the next few decades. This
would further exacerbate the budget deficit, dampening economic growth.

Exhibit 1: Oil price fluctuations (USD), 1987 – 2011 [19]
140
Nominal
Real (April 2011 US dollars)
120
May 1987-April 2011 monthly average Brent spot prices
Conversion to April 2011 dollars uses US CPI for AII Urban Consumers (CPI-U)
100

80

60

40

20

0
Jan 2011
Jan 2001
Jan 2002
Jan 2003
May 1987

Jan 2010
Jan 2005
Jan 2006
Jan 2007
Jan 2008
Jan 2009
Jan 2000
Jan 1988
Jan 1989
Jan 1990
Jan 1991
Jan 1992
Jan 1993
Jan 1994
Jan 1995
Jan 1996
Jan 1997
Jan 1998
Jan 1999

Jan 2004

Source: IEA (International Energy Agency), (2009), Key World Statistics

Electric Vehicles in India: Challenges and Opportunities 3

The transport sector is a key consumer of oil and oil products. More than 50% of the oil
consumption in India occurs on account of transport-related activities [85]. The World Energy
Outlook has estimated that most of the increase in oil consumption by 2030 in India will be driven
by light-duty vehicles, mainly passenger cars – growing at an annual rate of approximately 10%
(Exhibit 2) [5].

Exhibit 2: Energy usage worldwide, industry break up and light duty vehicle
depictions [19]

PROJECTED INCREMENTAL OIL TOTAL STOCK OF LIGHT-DUTY
DEMAND BY SECTOR, 2006-30 (MTI) VEHICLES BY REGION (bn)

2.5

x3
600 2.0 Africa
Latin America
400 Middle East
1.5 India
x2
Other Asia
200
China
1.0 Eastern Europe
EECCA
0 OECD Pacific
0.5 OECD Europe
-200
Transport Industry Non-energy Other OECD N. America
USE 0
Rest of world Other Asia India 2000 2010 2020 2030 2040 2050
China OECD

Source: IEA (International Energy Agency), (2009), Key World Statistics

A significant question to ask at this juncture is whether the world can continue generating a
sufficient supply of oil in the coming decades to accommodate the rise in demand from emerging
economies like India and China, without hampering environmental quality?

Until recently Governments and businesses have ignored the phenomenon of 'peak oil'. Peak oil
refers to the 'point at which the maximum rate of global oil extraction is reached'. However, there
has been growing acceptance of peak oil in the public domain, where both Governments and
businesses have been exploring alternative sources of energy supply, primarily renewable sources
like solar, wind, hydro, geo-thermal and nuclear energy. The oil industry is beginning to realize that
we have crossed “the era of easy oil, (and) in the future oil will be dirtier, deeper and far more
challenging (to extract)”[5]. Technologies that have the potential to phase-out oil dependent forms
of transportation should be actively pursued to gauge their feasibility.


1.2 Climate Change

Climate Change has emerged as one of the most pressing issues for Governments and
policymakers. This issue has drawn unprecedented global collaboration between scientists and
policy makers through the United Nations Framework Convention on Climate Change (UNFCCC)
treaty that has been signed by 194 nations (as of May, 2011). According to the Fourth Assessment
Report of the United Nations Intergovernmental Panel on Climate Change, 'warming of the planet
is unequivocal' and it is very likely that the rise in global average temperatures is 'due to the
observed increase in anthropogenic greenhouse gas (GhG) concentrations' [6].

The World Meteorological Organization (WMO) reported that 2010 was the hottest year on
records since 1880, tied with 2005, and the difference was less than a margin of uncertainty [7].
This is evidence of a warming trend that continues to be strengthened (Exhibit 3). Consensus
among the scientific community tells us that we must reduce greenhouse gases by 50% by 2050
to prevent the worst impacts of climate change [8].

Exhibit 3: Global temperature anomalies (°C) [6]
Global Temperature Anomalies
0.6

0.4

0.2

0

-0.2

-0.4

-0.6
1880 1900 1920 1940 1960 1980 2000

Year

Source: IPCC (Intergovernmental Panel on Climate Change), (2007), Summary for Policy Makers

Since the transportation sector is one of the largest and fastest growing sources of GhG
emissions, decoupling growth in transport from increasing GhG emissions presents a clear
challenge for policy makers in India. EVs, in particular, can have a significant impact towards
cutting down demand for oil imports and reducing carbon emissions arising from road
transportation, only if electricity is derived from hydro and renewable [9].


1.3 Road Transport Emissions in India

India is the fourth largest GhG emitter in the world. The transport sector is the fourth largest
contributor of greenhouse gases in India with a share of 7 .5% of the emissions in the country
preceded by electricity generation (37.8%), agriculture (17.6%) and industry (8.7%) [11].

India has witnessed a 200-fold increase in vehicle numbers between 1951 and 2011. Road
transport is the largest contributor of GhG emissions and was responsible for 87% (123.5 Mt
CO2e) of the total emissions arising from the transport sector in 2007 Currently passenger
.
vehicles that include two wheelers and four wheelers are responsible for about 30% to 35% of
the total road transport emissions (Exhibit 4).

Exhibit 4: Road Transport: CO2e emissions by Fuel type – 2007 [12]

2% 15%

Buses/Cars/Taxi/3W (CNG+LPG)

2W/3W (Petrol)

55% Cars/Taxi/Jeep (Petrol+Diesel)

28% Commercial Vehicles:
Trucks/Buses/LCV (Diesel)

Source: Transport Sector: Greenhouse Gas Emissions 2007 Central Road Research Institute, New Delhi, INCCA
,

Over the next decade, the number of passenger vehicles on the road is expected to rise sharply,
approximately 14% y-o-y. According to the IEA/SMP transportation model reference case (using
2003-04 as the base year), emissions from passenger cars are likely to grow at 5% per annum in
India [13]. Even if engine efficiencies improve, the sheer growth in the number of vehicles on the
road would lead to an absolute increase in GhG emissions from road transport.


Exhibit 5: Expected growth in CO2 emissions in India from different transport
modes [13]

800

700
Water
600 Frieght rail
Freight trucks
Megatonnes C O2

500 Air
Pass rail
400
Buses
3-wheelers
300
2-wheelers
Pass cars
200

100

0
0

10

20

30

40

50
5

15

25

5

5
0

0

3

4
20

20

20

20

20

20
20

20

20

20
20

Source: Mobility at What Cost?,InfoChange Agenda

1.4 Trends in Personal Road Transport in India

The Indian road network is the second largest in the world, covering 3.34 million kilometers where
as much as 80% of passenger traffic is carried by the roads [14].

The high growth rates of the Indian economy have resulted in an unprecedented rise in disposable
incomes and this has contributed towards a burgeoning automotive industry. With the Indian
economy projected to grow at an average of 8-9% per annum over the middle term, the
percentage of Indian consumers that are able to afford vehicles is likely to increase. Yet, India's car
per capita ratio (i.e. number of cars per 1000 persons) is the lowest among the world's five largest
automobile markets (Exhibit 6), pegged at 18 cars per 1000 people. The share of public transport
has been declining slowly as a result of the growth in private vehicle ownership, fuelled by
expanding urbanization and affluence.


Exhibit 6: Cars per 1,000 population (country breakup) & socio economic strata
growth in India [15]
Cars per, 000 population (2007)

Number of households ('000)
800 41
-6%
Germany
600 Italy 65.2
Spain France 140.7
USA 3%
400 UK
Japan 109.2
200 Russia
Brazil 16% 46.7
India 13.8
China 2001-02 2009-10
0 20 40 60 140
High Income Middle Income
Mn. Cars (2007)
(>Rs, 180K per month) (INR 45K per month)
Low Income
(<INR 45K per month)

Source: The Indian Automotive Industry: Evolving Dynamics, KPMG India

Existing transport infrastructure has however, proven to be grossly inadequate to meet these
demands. The reason for the same is reflected in a study conducted by the Ministry of Urban
Development, Government of India and Wilbur Smith Associates [16]. The study estimated that
total intra-city passenger transport activities (passenger kilometers) across 87 cities, including
state capitals and cities with populations greater than 0.5 million (2008), was growing at a rate of
about 5.5% per annum between 2007-11 as compared to a population growth rate of about 2.6%
per annum in the same period of time. It is estimated that the increase in passenger activities
would continue to grow at an even higher rate of about 7 .6% per annum between 2011 and 2031.

The dynamic interactions between personal vehicle penetration, rising incomes, increasing
affordability of cars and expanding export opportunities is expected to position the Indian
automobile industry for growth. The Indian automobile industry has recovered from the recession
registering record sales in 2009-10 and it contributed almost 4% of India's Gross Domestic
Product [15] and recent estimates suggest that the output of the industry is expected to reach 4
million units by 2013 [17] supported by infra structural developments and favorable Government
policies.

The automotive market remains cost-conscious in India. The primary decision point for car buyers
in India continues to be the upfront purchase price of vehicles, whereas fuel efficiency has
historically been a secondary concern, though the implied effect is evident due to a preference for
small and cheap cars. Having stated that, the luxury car market in India has shown compounded
annual growth rate of 30-40% over the last 4 years [18]. This statistic challenges the notion that
the Indian consumer will remain predominantly price conscious in the long term. However, as fuel
costs rise, we can expect increasing consumer importance and emphasis on fuel efficiency in
purchase decisions.


1.5 Modal Shifts

The rapid growth of demand for passenger mobility in Indian cities has not been matched by an
equal increase in supply of transport infrastructure and services. This has resulted in the increased
use of private vehicles across most urban centres accompanied by declining share of public
transport systems. In addition, with expanding cities, the share of pedestrians, cyclists and non-
motorized transport users has also fallen, as seen in Exhibit 7 8 and 9.
,

Exhibit 7: Growth in passenger vehicles Exhibit 8: Change in public transport
in India (mn) from 1981 to 2009 shares between 1994 to 2007 [16]
Growth of registered motor vehicles in India Share of public transport in India
90 80
Two-wheelers 70 1994 2007
80 Cars, jeeps, taxis
60
PT share (%)

70 Buses
60 50
50 40
40 30
30 20
20 10
10 0
0 <0.5 0.5 to 1 1 to 2 2 to 4 4 to 8 >8
1981 1991 2001 2009 City population size (in million)
Source: MoRTH Yearbooks Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban
Development), (2008), Study on Traffic & Transportation Policies and
Strategies in Urban Areas in India, as cited in TERI, (2012)

Exhibit 9: Changing shares of walk trips between 1994 and 2007 [16]
60
1994 2007
% Share of

40
walktrips

20

0
<.5 .5-1 1-2 2-4 4-8 Above 8
City population size (in mn)
Source: WSA (Wilbur Smith Associates) & MoUD (Ministry of Urban Development), (2008), Study on Traffic & Transportation Policies
and Strategies in Urban Areas in India, as cited in TERI, (2012)

In India, the transportation sector is responsible for nearly 20% of the total energy consumption
and is the second largest consumer of energy in the country after industry [19]. A significant
amount of road based passenger transport activities in the country are concentrated in cities. The
on-road passenger transport activities in urban India are responsible for nearly 40% of the total
energy consumption in road passenger transport sector [20].


The current trends in urban transport, which are primarily a result of the inability of Indian cities to
meet the increasing transport demand in a planned manner, have resulted in local problems
related to congestion, deterioration of air quality, increase in number of road fatalities and
accidents and loss in economic productivity. The congestion levels in many Indian cities have
reached unmanageable proportions, the average vehicle speeds dropping down to as low as 10
km/hour in many cities. This leads to higher fuel consumption due to low speeds and vehicle
idling [21].

Considering an oil constrained future and the high emission levels associated with the
transport sector, it is therefore important to reduce the use of petroleum dependent private
vehicles in the country.

In the 1950's and early 1960's, private vehicles were less in number and road transport served as
a mode complimentary to public transportation. By the late 1990's the share of road transport in
cities was as much as 80% in passenger traffic [21]. The modal split has shifted in favor of road
transport, away from energy efficient modes like railways and buses that have a lower carbon
footprint. For example, in Delhi the modal share of public transport has dropped from 60% in 2000
to 43% in 2008 [22]. This is a likely trend not only in most megacities but also Tier II and Tier III
cities that are characterized by poor transport services and infrastructure. Only 20 cities in the
country have an organized public bus service [23], which in most cases are inadequate leading to
an increased dependence on personal modes of transport.

Exhibit 10: Comparison of Vehicular Growth with Population Growth
140000

120000

100000

80000

60000

40000

20000

0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Population** 102874 102761 104353 106002 108900 110600 112200 113800 115400
Public Buses* 114.9 114.6 115.2 115.7 113.2 112.1 107.8 113.6 117.6
Cars/Taxis/Jeeps* 7058 7613 8599 9451 10320 11526 12649 13950 15313
2W* 38556 41581 47525 51922 58799 64743 69129 75336 82402
PCI 40678 42375 45337 49004 54505 60951 70238 78790 88420

Source: Indiastats.com


The growth in personal vehicle ownership will continue to accelerate with increasing incomes,
greater availability, as well as access to credit and decreasing vehicle cost, case in point being the
Tata Nano which has enjoyed an increase in sales, 5.8%, over 2011-2012 [24].

Exhibit 10 indicates a growing reliance on personal modes of transport (cars and two-wheelers)
and intermediate modes of transport (taxis and auto-rickshaws) driven by the doubling of per-
capita incomes from 2001 to 2009. Over the same period the number of public buses has
remained relatively constant considering a rise in population of approximately 125 million. This
data suggests a growing trend towards a reliance on personal modes of transport due to the
burgeoning middle class, a lack of urban planning and minimal investments by the Government
towards improving public transportation.

Bus services in particular have deteriorated because public transport service providers are unable
to expand services, both in terms of number of buses and number of routes plying. The share of
buses is negligible when compared to private/personalized vehicles in most Indian cities.
Overcrowding of the public transportation system is particularly evident in large cities, where
buses and trains carry more than twice their optimal capacity. As a result we have seen a massive
shift towards personalized transport, particularly two-wheelers, and the growing use of
intermediate modes such as taxis and three-wheeler auto-rickshaws [25].

At this juncture, it should be noted that the Government has drawn plans to improve local rail
networks in urban cities by improving access and expanding existing capacity. Other urban
transport planning initiatives include bus-rapid-transport-systems (BRTS), pedestrian zones,
skywalks and cycling paths. Delhi, Mumbai, Kolkata, Chennai and Hyderabad are in different
phases of planning or implementing light-duty metro rail services to complement existing modes
of public transport. It is envisaged that these plans will have some impact on increasing the share
of public transport. However given India's low motorization index and the lack of adequate
investments in public transport, the country is further expected to exhibit growth in light duty
personal vehicles.

India will be faced with the complex problem of convincing people not to use their vehicles
because this would increase the demand for oil imports - adding to the budget deficit while
contributing to the country's growing carbon footprint. Therefore, the only way to really shift
population mindsets is by making public transportation networks extensive, accessible and safer.
In the interim, alternative modes of sustainable personal transportation must be explored to
tackle the immediate socio-environmental impacts of the Internal Combustion Engine.


Transportation

Transportation
Sustainable transport systems aim to reduce emissions, fossil fuel
consumption and minimize the land area requirements, while providing easy
access to people to enable efficient mobility [25]. Vehicles that run on
alternative sources of energy such as solar, bio-fuels, fuel cells and batteries
have been developed, demonstrated and in some cases they have entered
markets and are already on the roads.

2.1 Technological Innovations in Low-Carbon Transport

A brief overview of key innovations in low-carbon vehicles that are being
actively pursued in India:

1. Electric Vehicles (EV)

EV's utilize electric motors to induce propulsion. The key differentiator between
EV's and conventional ICE vehicles is that the electricity that they consume can
be derived from different sources or a combination of energy sources,
particularly renewables such as solar and wind energy. Electric vehicles are only
as 'green' as the energy sources used to charge them. Charging EV's in India
remains a challenge, where 60% of electricity is generated from fossil fuels
fired coal power plants [26].

Electricity can be transmitted to EV's wirelessly through induction or directly
using an electrical cable. EV's utilize on-board batteries to store electricity.
Unlike ICE's, EV's are capable of regenerative braking whereby they are able to
recover the energy that is lost during braking as electricity that is then stored
back into the on-board battery. They do not have any tail-pipe or evaporative
emissions and are virtually maintenance free. There has been a renewed


interest in EVs as a solution to address the emerging concerns around energy security and
climate change. There are almost 40 new production ready electric vehicles and hybrid vehicles
launching by 2013.

2. Bio-fuels

Bio-fuels are broadly defined as “fuels that are produced directly or indirectly from organic
material – biomass – including plant materials and animal waste” [27]. Efficiency improvements in
conversion technology now permit the extraction of bio-fuels from a wide variety of sources,
particularly, wood, crops and waste materials. Bioethanol and biodiesel are the two most
commonly available types of biofuels. Biofuels have been around since the invention of the
automobile but were largely displaced by the discovery of huge deposits of oil that kept petrol
and diesel prices cheap for decades.

Bio-fuels are a renewable resource as more plants can be grown for conversion into fuel, with the
added advantage that the plants sequester carbon as they grow. Over the last decade there has
been much debate about the relative pros and cons of focusing on biofuels as a viable solution
based on a range of economic, social, environmental and technical issues. The large scale
production of bio-fuel for transportation would require large land areas; as a result its potential to
replace fossil fuels is limited. However, innovative approaches like using seaweed to produce
biofuels might address the 'food vs. fuel' debate and lead to breakthroughs.

The current world production of biofuels is less than 1% of world transport fuel demand and India
contributed about 0.6% of global biofuels production in 2009 [28]. In India, bio-fuels have an
assured market as the Government, through the 'National Biofuel Policy', aims to meet 20% of
diesel with fuel derived from plants. In 2009, the Government of India mandated 5% blending of
ethanol with petrol across India, which is projected to annually save 80 million liters of petrol [29].

3. Compressed Natural Gas (CNG)

Vehicles are increasingly using compressed natural gas (CNG), or less commonly liquefied natural
gas (LNG), as an alternative to conventional fuels as it is cheaper and cleaner. In 2010, there were
~12.6 million CNG/LNG vehicles plying the roads worldwide with India ranked 5th, with a total
fleet of approximately 1.08 million vehicles [30]. Existing petrol or diesel vehicles can be easily
modified to run on CNG at an average cost of INR 20,000 [31] for petrol vehicles and about INR
50,000 for diesel vehicles. CNG is one of the more promising alternative fuels due to its
abundance and zero emissions. The strongest driver of CNG development has been its favorable
economics i.e. the price advantage of CNG over conventional fuels.

CNG as a transport fuel has been actively promoted by the Government of India through
mandates and targets. The CNG programs in Delhi and Mumbai are the oldest and well matured,
driven by public policy mandates and a strong commercial interest of large taxi fleets in fuel/cost
savings. The Ministry of Environment and Forests recently stated that approximately 70% of intra-


city public buses use CNG as fuel [32]. Rising petrol and diesel prices have stimulated demand for
CNG vehicles and many auto majors like Maruti-Suzuki, Tata Motors, Chevrolet, Toyota, Hyundai,
among others, have introduced factory fitted CNG vehicles of their popular models in the Indian
market.

4. Hydrogen Fuel Vehicles (HFV)

Hydrogen vehicles internally convert the chemical energy from hydrogen to mechanical energy for
propulsion either through burning hydrogen in an internal combustion engine or through reactions
between hydrogen and oxygen in fuel cells that run electric motors.

Hydrogen vehicles are divided by two different technological approaches, namely -

i. Hydrogen-ICE: Existing cars that run on petrol and diesel can be modified to use hydrogen as
a fuel in their internal engines.

ii. Hydrogen Fuel Cell: Hydrogen fuel cell cars are essentially electric vehicles that use hydrogen
fuel cells instead of battery packs for power.

Hydrogen has proved to be an attractive fuel as it has excellent electro-chemical reactivity,
adequate power density to enable automobile propulsion and zero tail-pipe emissions [33].
Hydrogen can be produced using a wide variety of sources such as natural gas, coal, biomass,
geothermal, solar and wind, which makes it an important energy carrier from an energy-security
stand point. Most automobile majors have invested in developing prototypes and are at various
stages of testing commercial feasibility of HFV.

Though HFVs are considered to be zero emission vehicles, they do have 'well to wheel' (total
lifecycle) emissions, as most of the hydrogen used is produced from natural gas. Though HFCV's
tend to outperform battery electric vehicles in terms of range and refueling time, they yet face
significant technical and economic hurdles that critics, like Nobel laureates Steven Chu and Burt
Richter, say would not be overcome in the near future [34]. Most research tends to support a
hydrogen economy as a long term option as the hydrogen option suffers from several
uncertainties around system and infrastructure costs and is not likely to be available en-mass in
the foreseeable future, i.e. before 2020.

In India, the Planning Commission has constituted working groups to look at hydrogen as a viable
fuel. The Ministry of Petroleum and Natural Gas created a INR 100 cr. (USD 18.5mn) fund for
research and development of hydrogen technologies. Other efforts include - The Green Initiative
for Future Transport (GIFT), which aims to research, develop and demonstrate hydrogen fuel cell
vehicles, with goals and targets up to 2020. India is also one for the 16 founding members of the
International Partnership on Hydrogen Economy set up in Washington D.C., on November 2003
and has also prepared a National Hydrogen Energy Road Map and Programme (2006) focusing on
two and three-wheelers [35]. Few Indian vehicles manufactures like Mahindra and Tata Motors, in


partnership with research institutes have developed prototypes of hydrogen vehicles to test their
feasibility in the Indian market.

5. Hybrid/Dual Fuel Vehicles (HFV)

Hybrid/Dual Fuel Vehicles are defined as vehicles that use two or more distinct fuel sources, or a
mixture of fuels, for power and propulsion. HFVs are viewed as a transition technology to bridge
the gap towards zero-emission vehicles because they provide consumers with flexibility in terms
of fuel costs, refueling time, driving distances and emission reductions [37]. They tend to be
cleaner and are more fuel-efficient than conventional vehicles that use an ICE, the extent of which
depends on the combination of fuel sources used. Many different combinations of fuel sources
have been developed and tested for vehicles.

Hybrid vehicles typically ensure savings in terms of fuel economy and emissions due to the
following:

i. Relying on both engines and electric motors for their power needs, as this reduces the size
and weight of engines resulting in less internal losses.

ii. The tank-to-wheel efficiency of electric motors is also significantly higher than ICEs.

iii. Batteries have the capacity to efficiently store, reuse and recapture energy, through
technologies like regenerative breaking that save energy normally wasted as heat during
braking.

iv. Vehicles use blended fuels, like ethanol added to petrol or hydrogen mixed with CNG, as the
addition of low emission fuels to conventional fuels reduces the total fuel emission factor.

Exhibit 11: Various fuel combinations being pursued through Government initiatives
and by automobile manufactures

Hybrid and Dual Fuel Vehicles

Blended Fuels Dual Fuels

Liquid Gaseous
CNG Electric
+ +
Hydrogen +CNG Gasoline Gasoline
Biofuel +Gasoline
(Hy-thane)

Source: YES BANK Analysis


The Government of India, in partnership with automobile manufacturers and research institutes,
has been exploring the feasibility of blended fuels and dual fuel vehicles. The future will most likely
see a combination of solutions being used for different purposes based on their relative suitability.
For example, while dual fuel vehicles might be promoted in densely populated urban environment
that have the required recharging/refueling infrastructure, vehicles running on a mix of gasoline
and ethanol might be suited to inter-city mobility or long distance journeys where recharging
infrastructure for electric vehicles or CNG refueling facilities are absent. The Ministry of New and
Renewable Energy, along with SIAM, IOCL, Tata Motors, Ashok Leyland, Eicher Motors, Mahindra
and Mahindra and Bajaj Auto, have supported a unique project for demonstrating a hybrid Hythane
(H-CNG) model, using up to 30% of hydrogen and CNG, in cars, buses and three-wheelers[35].

6. Advanced Internal Combustion Engine (AICE)

Vehicles that utilize new technologies to improve the overall engine efficiency and reduce
emissions of internal combustion engine vehicles are collectively called Advanced Internal
Combustion Engine (AICE) vehicles. Automobile manufacturers constantly strive to improve the
efficiency of ICE vehicles to reduce energy loss, improve mileage, reduce tail-pipe emissions and
ultimately lower the cost of operation. The Government of India has also driven engine efficiency
improvements by imposing the Bharat Stage (BS) emissions standards, which are progressively
updated. They stipulate emissions limits for different vehicles categories. Automobile
manufacturers must meet the stipulated criteria as they are mandatory.

In cost-conscious markets like India, a key decision point for consumers is the total cost of
ownership of vehicles – which includes the price of the vehicles, the cost of fuel, and
maintenance costs. Cars that have a higher efficiency require comparatively less fuel to travel a
particular distance. As a result their fuel consumption and running costs are less. However, it is
important to consider the 'rebound effect', formally referred to as the Khazzoom-Brookes
postulate [37], that has been confirmed by a wide range of studies and indicates that when energy
prices are constant, cost effective efficiency improvements will increase economy-wide energy
consumption above what it would have been without those improvements or in simpler terms -
“greater the efficiency of a process, the greater the energy use” [5]. The Kazzoom-Brookes
postulate clearly suggests that energy efficiency improvements in the automobile sector would
not suffice to meet future transportation goals (i.e. de-carbonization of the transport sector), as
they would invariably lead to an absolute increase in energy/fuel consumption and thus carbon
emissions [37].

Advanced ICE's are not an end solution but they will play an important role as an intermediate
wedge until other low-carbon alternatives like EVs and HFV's achieve scale and market
penetration.


Exhibit 12: Fuel type impact analysis
Comparison of Alternative Transport Technologies in India
Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/
Hythane
Main fuel Crude oil Crude oil Soy bean oil, Corn, grains or Underground Coal; however Natural gas,
source rapeseed oil, agricultural reserves there are a methanol,
waste cooking waste range of other energy
oil, animal fats (sugarcane sources that sources
molasses) include including
nuclear, natural renewables
gas,
hydroelectric
and
renewables.

Physical state Liquid Liquid Liquid Liquid Compressed Electricity Compressed
gas gas

Types of All types of Most types of Any vehicle Light duty Many types of Neighborhood No vehicles
Vehicles vehicles vehicle that runs on vehicles, vehicle electric available for
Available categories categories. diesel -no medium and categories - vehicles, commercial
modifications heavy duty but most bicycles, sale; several
for up to 5% trucks and require motorbikes, pilot projects
blends and buses. Other modifications light-duty are currently
many engines vehicles that to engines and vehicles, being
are compatible can use mixed space for medium and demonstrated.
with 20% fuels. storage tanks. heavy duty
blends. trucks and
buses.

Fuel Available at all Available at all Not available at Currently Available in Charging Not available at
Availability fueling fueling fuelling blended with most large facilities not fueling
stations stations stations. Plans diesel or cities and available at any stations. A
to introduce petrol. 5% widely across fueling demo station
biodiesel ethanol Maharashtra, stations. Most has been set
through the blended petrol Gujarat and homes, up at Dwarka
'National has been Delhi. Government in Delhi to test
Biofuels introduced in facilities, the technology
Policy'. It is 20 states and garages and
now being 8 union businesses
produced territories, and have adequate
locally for use will be electricity
in three- extended to capacity for
wheeler 10%blend pan- charging (may
rickshaws. India in require slight
phase2. upgrades)

Refueling Refueling Refueling Existing Ethanol fuel Expansion of Need for public Delivery of
Infrastructure stations are stations are fuelling dispensers can gas pipelines charging hydrogen will
widely spread widely spread stations can be be easily will lead to stations at require
across the across the fitted with bio- installed at greater parking lots, significant
country. country. diesel pumps conventional availability of malls, fuelling investment
Mature Mature fueling CNG stations and towards
infrastructure infrastructure stations also in production and
for the deliver for delivery of buildings infrastructure.
of petrol. diesel. Hythane can
make use of
existing CNG
infrastructure.


Petrol Diesel Bio-Diesel Ethanol CNG Electric Hydrogen/
Hythane
Maintenance Require regular Require regular Hoses and Special High pressure Minimal In fuel cell
pollution pollution seal may be lubricants may tanks require servicing applications
checks, checks, affected with be required. periodic needed. No maintenance
servicing, servicing, higher-percent Practices are inspection and tune-ups, oil in minimal.
tune-ups, oil tune-ups, oil blends. similar to certification changes, Hydrogen-
changes, changes, Lubricity is conventional timing belts, ICE's would
lubrication lubrication improved over vehicles water pumps, require regular
that of radiators or servicing.
conventional fuel injectors.
diesel Batteries need
to be replaced
after 3-6 years

Fuel Costs INR 71/liter INR 42/liter NA INR 27/liter INR 32/kg INR 4/kWh NA
(as on Sept
2012)

Environment Produces Produces Reduces Can Significant Zero tail-pipe Zero regulated
Impacts harmful harmful emissions and demonstrate reduction in emissions. emission for
emissions. emissions and particulate up to 25% tail pipe and Some fuel cell
Gasoline particulate matter when reduction in ozone forming emissions can vehicles and
vehicles are matter. compared to ozone-forming emissions be attributed only NOx
improving and Emissions are conventional emissions though HC to power emissions
as a result being reduced diesel. when emissions may source/ possible with
emissions are with after- However NOx compared to increase. generation. Hydrogen ICE
being treatment emissions may petrol. vehicles.
progressively devices. increase.
reduced.

Energy Manufactured Manufactured Bio-diesel is Ethanol is CNG is Electricity is Hydrogen can
Security using mostly using mostly domestically domestically domestically generated help reduce
Impacts imported oil imported oil produced and produced and produced but through coal India's
which is not a which is not a has a fossil is renewable. is limited. India fired power dependence
secure option secure option energy ratio of is currently plants as it is on foreign oil
3.3 to 1 which exploring available in by being
means that its options of plenty. It is the produced from
impacts are importing most renewable
slightly less natural gas economical resources
but similar to from Iran and and price
petrol Myanmar. stable fuel.

(Source: YES BANK research, SIAM, Ministry of Petrolium,
US Department of Energy –Alternate Fuels and Advanced Vehicle Data Center)

2.2 Pathway to Zero-Emission Vehicles

The path towards Zero-Emission Vehicles (ZEVs) begins with technological modifications and
enhancements to existing engines and drive-trains that improve the tank-to-wheel efficiency of
vehicles. Vehicles that run on low-carbon alternative fuels such as biodiesel, ethanol, synthfuels
and natural gas are categorized collectively with high efficiency ICEs as A-ICE vehicles, and they
can reduce emissions by up to 10-15% [39].


Exhibit 13: The path to electrification

Electrification

Hydrogen
Technological Advancement

Fully
Electric

Hybrid
Fuel + Electric

Natural Gas
and Biofuels

Advanced
Internal
Combustion

Up to 15% 10- 30% 30-40% 50 -100 % 50 -100 %

Carbon Reduction Potential

The next step towards ZEVs involves the electrification of vehicles. There are a wide range of EV
technologies being explored at the moment, that include:

Mild-Hybrid – It is the first real step towards electrification and ZEVs, and contains a small
ü
electric motor that enables a start-stop system, facilitates regenerative braking energy to
charge the battery and offers acceleration assistance. Mild-hybrid vehicles achieve small
reductions in emissions, between 10 to 15% at relatively high costs [39]. It is viewed as an
intermediate development step towards a fully-hybrid system.

Fully-Hybrid – Features a larger motor and battery pack that provides the vehicle with electric
ü
launching, acceleration assistance and electric driving at low speeds. It can achieve a
maximum of 25-30% in GhG emission reductions. Though fully-hybrids currently cost
between INR 2.5 to 3.5 lacs (USD 4629 – USD 6481) more than conventional ICE cars, the
cost of hybrid components is expected to fall by 5% per year [39].

Plug-in Hybrid (PHEV) – It is a hybrid vehicle with a larger battery that can be recharged by
ü
connecting a plug to an electric power source or grid. The ability to connect to the grid gives
the PHEV an range of 30-60 kilometers of all electric driving. PHEVs feature smaller ICE that
takes over from the all electric drive to provide a longer range. The carbon reduction potential
of a PHEV is between 30-40%.


Range Extenders – They are all EVs that feature a small ICE that is used to recharge the
ü
battery to extend the driving range. This feature is useful in the absence of charging
infrastructure as they combine the advantages of electric driving with the ability to undertake
longer journeys. They have a carbon reduction potential of between 60-80% depending on the
electricity source used to charge the battery [39].

Fully Electric – All of the needed propulsion energy is stored in a large battery that can be
ü
recharged by connecting it to the electricity grid. Electric vehicles are two to three times
more efficient than conventional ICEs [40]. Though there are a range of different battery
technologies being used, it is predicted that litium-ion batteries will dominate the landscape
[40]. A fully electric vehicle is only as clean as the source of electricity that is used to
recharge the battery, and when charged using renewable sources it can reduce emissions by
up to 80-100%.

Exhibit 14: GhG emissions from various fuel sources [42]
Greenhouse Gas Pollution (Light duty vehicles only)
(Billion/tonnes CO2-equivalent/year) 100% Gasoline
ICVs
2.5
Base Case:
Gasoline Hybrid
Scenario
2.0

Gasoline Plug-In
1.5
Hybrid Scenario

1990 LDV GHC Ethanol Plug-In
1.0 Hybrid Scenario

GhG Goal: 60% below BEV
1990 Pollution Scenario
0.5
H2 ICE HEV
GhG Goal: 80% below 1990 Scenario
Pollution
- Fuel Cell
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Vehicle Scenario
Source: Zhang & Cooke, 2010


The Electric Vehicle
Value Chain

The Electric Vehicle
Value Chain
The stimulus for a technological shift towards electric vehicles in India, as is the
case among most comparable markets, depends on improved battery
technologies, longer ranges, better charging infrastructure, lower prices,
Government incentives and progressive regulation. While electric vehicles offer
a great opportunity to diversify across the value chain, they also pose significant
risks as the technology could change the dynamics of the industry and cede
large parts of the value chain that has evolved over several decades obsolete
[43].

In order to grasp the changing landscape of the EV sector it is important to
understand the different actors across its value chain and the relationships they
share –

Exhibit 15: The EV value chain
Traditional Utilities /
Raw Material Battery
Component OEMS Infrastructure
Suppliers Suppliers
Suppliers

Source:YES BANK Analysis

3.1 Raw Material Suppliers

Raw materials have a high impact on cost structures of the automobile sector.
Raw material suppliers face a host of challenges that include rising prices,
fluctuating prices, discriminatory pricing by foreign vendors of Indian
component manufacturers/exporters and custom free import of finished goods
from ASEAN countries under various free trade agreements [44]. Steel is one


of the primary raw materials used in the manufacture of automobiles and its price has risen
between 25% to 40% for specific products like flat, long and pig iron which are commonly used
by vehicle manufacturers. Ironically, even though India is one of the cheapest sources of iron ore,
steel prices are high when compared to international standards. The Government of India must
consider enforcing competitive policies that contain the price of steel against global steel prices
by regulating the export of steel, monitoring steel price and lowering import duty to widen access
to cheap steel sources outside India (IDC, 2008) [45]. Other raw materials like plastics and lithium
(for batteries), a rare earth metal, are also plagued by global price fluctuations. Given the growth
in demand for lithium batteries, that are used in common electronics and appliances like mobile
phones and laptops, the price of lithium is expected to rise as lithium reserves are scare and
geographically sparse. This is of particular concern to Indian battery manufacturers, considering
China is the closest source of lithium, having the largest proven lithium reserves in the world.
Also, the battery component has the highest weightage in the overall cost structure of an EV.

3.2 Traditional Component Suppliers

The auto component industry in India is expected to grow at a rate of 13-15%, having the
potential to become one of the top five auto component economies by 2025 [45]. Over the last
decade there has been a marked improvement in the quality of auto components manufactured in
India. Most of the standard components required by the Indian automotive sector are
domestically manufactured with an import dependance estimate of about 13.5% of domestic
demand. Due to growing economies of scale of the Indian auto component industry,
manufacturers of EV are likely to depend on traditional component manufacturers for all
standardized parts that go into an EV and that are common to ICE vehicles such as tyres, seats,
doors, windows etc. India exports a wide range of auto components and chassis. The auto
component industry's exports are expected to grow by about 24% during 2010-2015 [46], and can
be further bolstered by investing in technology collaborations and joint R&D. Traditional
component manufacturers can diversify their product offerings by tying up with makers of EVs,
leveraging their technological expertise, to develop specialized parts for hybrid and EV, both for
domestic and export markets. India has a relatively strong auto component base for electrical and
electronic components that can be leveraged to tap into the emerging EV sector.

3.3 Battery Manufacturers & Suppliers

A key concern in the EV sector has been the advancement of battery technology, which has
benefitted from recent breakthroughs in lithium-Ion batteries due to their application in computers
and mobile devices. There has been substantial growth in the number of lithium-ion patents in
China, USA, Japan and Western Europe [40] and batteries available today can store energy to
enable driving ranges that exceed 100 kms. Battery manufacturers have been working with
OEM's to develop batteries for EVs and many of them have been increasing production capacity
to achieve the required volume to drive down prices. The growth in the battery market for EVs will
spur investments in R&D making batteries more reliable and affordable while providing longer
driving ranges. It is likely that existing battery suppliers for mobile devices will dominate the


market, though new players are quickly emerging. Battery manufacturers and suppliers will also
have to consider pro-environmental means to dispose depleted batteries as they comprise
hazardous chemicals. While some battery suppliers are forging new partnerships with automobile
manufacturers to reduce risks (e.g. Toyota and Panasonic), others continue to traditionally buy
batteries from Tier 1 suppliers (e.g. Johnson Control and Saft)

3.4 Original Equipment Manufacturers (OEMs)

Looking ahead, OEM's face daunting challenges towards the allocation of investments in new
technologies as a result of the current financial slowdown, and yet they must adapt their
businesses to capitalize on emerging opportunities in new markets, specifically the EV sector. The
automobile industry seems to be preparing for a major shift towards powertrain technology. There
are a range of different types of EVs (see 'Pathway to ZEVs) and OEM's will have to assess
options based on their ability to leverage different actors across the value chain. Since established
OEM's have plants that are built around mass production, they offer very few cost advantages for
new powertrain configurations. OEM's could develop a competitive advantage through
partnerships with technology companies (that have know-how on electric drive-trains), battery
manufactures and traditional component suppliers to reduce risks and leapfrog the development
of EVs. In turn, they could also partner with other OEM's to share and spread associated risk, by
standardizing EV components. Manufacturers in emerging economies, India and China in
particular, are exposed to much wider business opportunities from the shift towards EVs.

3.5 Utilities

“Indian cities and towns are plagued by frequent outages and the basic requirement for electric
cars is electricity…” [47]. A growth in demand for EVs will have a sizable impact on electricity
generators and suppliers. This additional demand for electricity will have to be addressed through
increased generating capacity and essentially through better grid management. Driven by reforms
beginning with 'The Electricity Act, 2003', followed by de-licensing, the power generation sector
has transformed from being a slow moving industry to a space where there lie vast growth
opportunities. By repairing or upgrading distribution equipment, efforts are being made to reduce
transmission and distribution losses, which currently stands at 28%. Covered in a later section,
we will explore the possibility of introducing smart grids in major metropolitan cities, from a
technical perspective. India's power sector has increased generation capacity by record numbers
this year, and it is expected to double from the current 177 gigawatts (2011) to 300 gigawatts by
2015 [48]. India also has plans to generate 15% of the electricity mix through renewable sources
such as solar, wind, biomass, geothermal and hydro energy [49]. Solar energy is expected to grow
to the tune of 2 GW by 2013, gradually scaling up to 20 GW by 2020 [50], and wind energy
generation capacity which has experienced phenomenal growth, stands at 13 GW (Dec, 2010) and
is expected to grow to about 50 GW by 2020 [49]. According to a number of studies, electricity
demand from EVs can 'increase the penetration of wind as a baseload resource' [51], since the
generating profile of wind energy matches the load profile of a night-time charging regime.
Increasing the renewable energy mix would reduce the emission factor of the total electricity


generation mix, rendering EV's cleaner and greener. Since EVs are only as clean as the electricity
used to charge them, adding renewable energy to the mix would only boost their green
credentials. EV manufacturers must liaise with utility providers in order to develop innovative
solutions for charging of public and private, including option of using renewable energy sources.

3.6 The Electric Vehicle Ecosystem

Exhibit 16: The EV Ecosystem

Insurance
Finance Tech R&D
Smart Grid
Firming Renewables Grid Storage Climate Change

Data Flow
Policy
Renewable Power Building/Vehicle
Interaction (V2B)
Information
Li-ion Battery
V2G
Money
Consumers
Vehicle Electrification Electricity Smart Charging

Key system players Major trends

Source: Mahindra - Reva


Exhibit 17: EV risks, challenges & solutions


EV

Safety safety chassis



Policies Promoting
Electric Vehicles
in India

Electric Vehicles in India: Challenges & Opportunities

Electric Vehicles in India: Challenges & Opportunities

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (10)

Ähnlich wie Electric Vehicles in India: Challenges & Opportunities

Ähnlich wie Electric Vehicles in India: Challenges & Opportunities (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Electric Vehicles in India: Challenges & Opportunities