The central government must offer a subsidy to individual buyers to spur sustainable demand for electric vehicles (EVs), making EVs affordable and their manufacturing a viable business for automobile companies, says the country head of Hyundai Motor India.
“We are developing a mass-market EV that we will introduce in a few years. For an OEM to be aggressive in the EV space we need some viable demand and scale,” said Seon Seob Kim, managing director and chief executive officer of Hyundai Motor, India’s second largest carmaker. OEM is short for an original equipment manufacturer.
“There clearly seems to be lots of hurdles in securing a meaningful volume and demand. So, we are expecting some government support in that area by allowing some incentive or tax benefit, government subsidy even to the personal EV customer,” Kim added.
Electric cars meant for personal use do not get any direct subsidy from the Centre. Only those buyers who wish to put electric cars to commercial use, such as running taxis, receive a central subsidy.
In addition, states like Gujarat, Bihar, Maharashtra and Delhi run their own subsidy programmes, which provide incentives to buyers irrespective of the end-use of EVs.
“Unless battery prices come down its not possible to make EVs to stimulate demand on their own without government incentive. Therefore the new Tigor EV costs more than double than its petrol-powered counterpart. But these are initial days for EVs in India and this will stabilise in the next few years,” said a Mumbai-based analyst from a brokerage firm.
The Centre provides a subsidy of Rs 10,000 per kilowatt on electric four-wheelers that are priced up to Rs 15 lakh. But a personal car buyer cannot benefit from the subsidy. To be sure, the Centre has provided other benefits (exclusively for individual buyers of EVs) like deduction of interest payments up to Rs 1.5 lakh from taxable income and the lowest goods and services tax among all vehicle categories at just 5 percent.
“I am not asking for long-term support but just for a few years. That support will be very critical for the OEM to build some valuable scale and it will be very helpful for the future business,” Kim added.
At the beginning of their own EV revolution, countries like China introduced direct incentives to make EVs affordable. Even after the withdrawal of such incentives, EVs continue to be a significant driver of automobile demand in China. Although there has been a consistent drop, battery cost remains the single biggest cost component in an EV, making up 40-60 percent of the cost of a vehicle.
India has been trying to encourage the use of EVs to reduce the country’s dependence on diesel and petrol as part of a larger effort to cut vehicular emissions in line with commitments it has made under the global climate change pact.
The effort has paid some dividends and demand for EVs has been increasing, albeit from a low base. Tata Motors, which controls 70 percent of the electric car market, sold 1,022 electric vehicles in August, making up nearly 4 percent of its total passenger vehicle sales during the month. This share was nearly 2 percent in August 2020 with sales of 306 EVs. Tata Motors has three EVs in its portfolio – Nexon EV, Tigor EV and XPRES-T EV.
Although it receives no direct subsidy because of its high price, the ZS EV manufactured by MG Motor India Private Limited received its highest-ever bookings in a month of more than 700 units in August.
The ZS EV is the second highest-selling EV in India. Both Tata Motors and MG Motor are working towards expanding their EV portfolio through new launches along with former market leader Mahindra & Mahindra.