Role of Incentives in Reducing TCO of Electric Vehicles in Delhi
In India’s transition towards clean and sustainable transportation, increased use of electric vehicles (EVs) is a crucial element. One major barrier to achieving this goal is the vehicles’ high initial cost. India’s central and state governments have offered multiple fiscal and non-fiscal incentives to make the economics of owning an EV more attractive. In Delhi, electric car buyers are eligible for up to six fiscal incentives, depending on how the car is used. To assess the effectiveness of these incentives, we analysed their impact on the TCO of EVs and compared with the ICEs in Oxford Institute for Energy Studies July journal. Refer to pages 15-19 for the analysis.
The analysis demonstrates that incentives play a crucial role in reducing the TCO of electric cars and helping them achieve cost parity with ICE vehicles, and that in the electric car market, commercial cars are much more attractive given their higher daily utilization. For non-commercial users, who are ineligible for the FAME II (central govt.) subsidy and have much lower daily use rates, the TCO is still more favourable towards ICE cars than EVs. There is hence a case for considering an appropriate incentive framework for private cars that encourages their adoption.
Use case: An indivdually owned, self-driven 4W taxi purchased on a 3-year loan financing (80%) and running 160 km daily in Delhi
The incentive structure plays an important role in driving adoption of electric cars in India. Prematurely withdrawn incentives will increase TCO for EVs and might lead to a drop-in sale. This would mean that the incentives need to continue for a few years to come. It also highlights a need for policy to evolve in a way that ensures that EV sales become more self-sustaining. As EV sales pick up, economies of scale will drive prices down, which could eventually mean that subsidies are no longer needed.
As much as EV adoption depends on cost parity, it also depends on the mindset and behaviour of users. It is equally important to understand the operational differences between EVs and ICE vehicles, like operating hours, charging time, and the presence of charging infrastructure. TCO parity alone will not guarantee EV adoption. There are multiple other equally important factors on which EV sales depend, which will need to be addressed to drive adoption.