electrical care charging in an autumn cityscape
Incentives, Choices and EMIs – The ICE Recipe for Electric Vehicles
India will witness a rapid growth in freight transport over the coming decades. The country can implement a set of solutions to meet that growing demand cost-effectively and sustainably
This article was coauthored by Anand GCP, COO, Micelio Mobility and originally published on ET Auto and The Economic Times.
Across the world, merely 8,000 electric cars were sold in 2010 but the decade ended with the sale of about 20 lakh such vehicles. While Norway crossed the threshold of 50 percent share of electric vehicle (EVs) in new sales, the market share of battery-powered cars touched 5 percent in most European nations for the first time.
Source: IEA (2021), Global EV Data Explorer, IEA
In India, although the base for EVs is low, the monthly sales for internal combustion engine (ICE) vehicles and EVs during pre- and post-COVID first wave showed interesting trends. Unlike their fossil fuel counterparts, EVs were able to exceed ‘pre-first wave’ sales and showed Month-on-Month (MoM) increasing sales till March’21 until the second wave hit the nation. In a few states such as Tamil Nadu and Kerala, EV registrations witnessed 20 to 50 times increase over the last three years.
Source: Vahan Dashboard, Ministry of Road Transport and Highways, Govt. of India
There is an increasing consensus that the leading EV markets globally are very close to reaching the “tipping point” for adoption of electric cars. This trend is considered to have been expedited by (i) innovation and improvement in battery technology and (ii) the falling cost of batteries/electric cars. But are tipping points just a function of technology and price reduction – or is there more to it?
Gerald Kane in his 2019 paper argues that tipping points are not about the technology; they are about people. Tipping points are socially driven, and any attempt to identify a coming inflection has to take the social dimension into account (Gobble, 2019). Countries that are approaching the inflection points for EV adoption indicate that beyond government interventions, which have primarily focused on provision of incentives and infrastructure, three elements are critical to trigger/scale EV adoption. These are:
- Early adopters
- Availability of product choices across all price segments
- Ease of buying in terms of affordable and accessible financing
As typically understood from the new technology diffusion cycle, early adopters are critical for the transition between the first ‘few’ adopters of technology i.e., the ‘innovators’ and the ‘early majority’. The early majority take cues from the feedback of early adopters in their decisions to buy/adopt new technology products.
It is difficult to predict who the early adopters would be. There is a significant interest from policymakers and industry players to understand this first large EV user group and its characteristics. Studies in a few leading EV markets indicate that their most important distinguishing factors are symbolic motives, willingness to pay and innovativeness – not demographics.
Early adopters should not be confused with the early buyers. They are also unlikely to hold the key to understanding the early majority (Anable et al, 2011). But they are critical because they have the ability to influence the next set of sales by making EVs aspirational.
In the Indian context, the EV sales trends so far have been dominated by affordable and low-speed products in the two and three-wheeled categories. These sales have perhaps been mostly driven more by the need for low-cost/affordable mobility, in a context of lack of public transport and stringent regulations, than the symbolic motive of owning a new/different vehicle technology). For many of these early EV buyers, the primary motivation may be economics, which by itself is not bad, but may not serve as an aspirational beacon for the next set of buyers.
These early EV consumers in India could thus be better classified as early buyers and shouldn’t be confused with or assumed to be the early adopters.
Early adopters are those whose feedback on EVs (rather than a specific EV product) would help the next set of buyers to focus on their ‘aspiration for EVs’ and help their buying decision.
Given their symbolic motivation, a section of early adopters can be expected to purchase EVs that are aspirational. These could be electric sedans/ SUVs or the likes that a large section of consumers will desire to own but may not be able to due to premium pricing. The sales of such aspirational products to early adopters are likely to be low and may not provide the desired scale for India’s EV transition. They will, however, play an important role in boosting the next set of sales (in different and affordable price segments with adequate product choices) that can provide the desired scale.
To get the desired mass scale in sales, there needs to be enough EV choices for each consumer/price segment. In European markets, when EV models doubled between 2019 and 2020, more than doubling of sales was observed, as compared to average 30 percent annual growth since 2015.
Source: IEA Global EV Outlook (Various Years)
The incentives and charging points have been in place in these markets for some time and are critical. They have been prerequisites/necessary conditions for EVs to take off but not sufficient for scaled growth. Product choices become equally or more important when the market starts reaching a point where a majority of population is ready to purchase EVs.
In India, the EV product choices range in single digits for segments such as electric cars and were concentrated in similar price bands till recently. About 30-40 years ago, the situation was very similar even for ICE vehicles. The number of models available in the passenger car segment was two in 1982–1983, which rose to eight in 1994–1995, and twenty-eight in 2001–2002 (Miglani, 2019). The sales trends show steep upward trend as product choices increased across all price segments.
If not equal to ICE product choices, it will be important to at least present enough EV choices to Indian consumers. Many would want to transition from ICE and would tend to compare the two technologies and the choices available. The number of product choices and their perceived value – both will become important.
The government has played its part in enabling the initial sales of EVs through incentives and policy reforms. It will now be critical for original equipment manufacturer to step forward and provide the choices and value that the mass sales of EVs would require.
Ease of buying
The biggest EV value proposition to consumers will be its operational savings. In the current scenario of exploding petrol and diesel prices, these savings make the differential between ICE and EVs even more significant and the total cost of ownership (TCO) of EVs very attractive. But just an attractive or lower TCO hasn’t been able to draw consumers. The higher upfront cost of EVs or the sticker price shock is still a roadblock for many segments.
While incentives have helped in reducing the upfront price of EVs, the differential with ICE still remains a challenge and will need to be addressed, more desirably by financing than more incentives.
Affordable cost of ownership or ease of buying, hence, will be as important as the TCO of EVs. This would imply addressing the challenge of lack of enough financing options, higher upfront outflow, high interest rates and low loan-to-value ratio. There will be a need for devising financing solutions that increase and ease access to affordable financing.
The ICE recipe for EVs, hence, will require that the current paradigm of an Incentives-based approach now transitions to a Customer-centric approach that aims to enable more EV Choices and Ease of buying through affordable and accessible financing options.