Indian Industry in its effort to Electro Mobility

Back in 2002, Ashok Leyland Ltd. developed countries first Hybrid electric vehicle (bus). In 2010 they came up again with a new hybrid model. But these vehicles never commercialized because of lack of incentive from government incentive. Similarly Tata motors used Hybrid bus back in 2010 (Commonwealth Games), subsequently they came up with many more hybrid concept vehicles that never commercialized. Mahindra has electric vehicles that are commercialized.

If one goes through history then at least from 2006 there were works going on in this direction with a significant success. But due to the nature of this industry nothing is possible without the government incentive to commercialize these works. Even the FAME initiative of Government of India took 7 years to come in the first phase of industrialization.

The situation today is that given the right push these corporations can come up with models of Electric and Hybrid vehicles that can serve the Indian industry. These players have technology, have financial might to buy technology and expertise to commercialize. Its only a matter of time and correct push when this market becomes big and viable.

A similar effort was necessary for CNG sector since India has large reserve of CNG, and the firms were ready with technology to give India a better solution but in the wake of exploration of Shale gas option there was less interest to push in this direction.

Indian Governments Contribution on Hybrid and Electric vehicles industry

In recent days like the rest of the world, in India too there is increasing interest for Hybrid and Electric vehicle. In April 2015, Indian government has introduced an scheme to subsidies the Hybrid and Electric vehicle. As I have indicated in the last blog Indian industry indeed trying to move towards more ecofriendly and efficient electric vehicles through the FAME India Scheme.

Pilot projects

 

Though the scheme has the subsidy as the main component (which will be discussed later), it has indeed has taken up a number of pilot project to ensure infrastructure and application synergy. Since an transportation industry has to be supported by infrastructure, service and demand, so most of these projects are limited by geographical niche and demand. As the subsidy plan is mainly for the end user so the first focus is taken towards small transportation need. Some of the example of these projects are

1.      Running pure electric vehicles (7 seater) in the last 2 Kms at Taj Mahal (Agra)

2.      Pure Electric 2 wheeler vehicles for home delivery (Dominos, KFCs etc)

3.      Pure electric 3 wheelers/small 4 wheelers for fruit and vegetable distribution and garbage disposal etc.

4.       Electric cars for taxi fleets, corporate hire and rental scheme use etc.

5.      Last mile connectivity from metro stations.

6.      Hybrid and electric buses for public transport and creation of clean air islands for selected areas

The good thing about these projects is that the demand condition is automatically fulfilled. Infrastructure and service is taken care by small geographic area of operation. Like project 1, 2 and 3, some of them are for purely electric mobility.  

 

Subsidy

Subsidy is a major part of the in the FAME India scheme. Indian government estimated a total expenditure of INR 14000 cr ($ 2.12 billion) for 6 yrs under these scheme. However Indian government expects to save usage of fossil fuel by INR 60000 cr ($ 9.08 billion)

In the phase 1 Indian government allocated a INR 795 cr for the first two year. Out of which INR 500 cr will be invested on demand incentives. This will be transferred directly to the consumer who will get the vehicles at a discounted rate to initiate operation. Indian government expects to get 15-16 million vehicles (2, 3, 4 wheelers and busses) on road by 2020 under this scheme.

Government decided to give 35% subsidy to pure electric vehicle and 25% on plugin electric vehicles that can at least go 15km in one charge. Similarly mild hybrids will get 15% subsidy. Due to lesser range Government is expecting the electric vehicles to be used only for city applications and Hybrid vehicles for long range application category. 

Many critics believe this subsidy scheme is to little to give it a push. But its definitely a start.

Testing and charging infrastructure

Indian government rule makes it necessary for the OEM to get certified by the testing agencies approved by the government to get the subsidy. So the testing agencies need to improve the infrastructure of the testing agencies. At the same time there is a need to improve charging infrastructure to keep the vehicles on road. As on today the only pure electric vehicle Mahindra e20 has a range of about 120 km with charging time of 5 hrs. So until there is a significant improvement in range and reduction in charging time, these vehicles will not be viable for most application. So the government needs to do more in this direction. It has allocated only INR 260 Cr for the improvement in this direction. This is not enough for a significant improvement.

Putting together Indian government has started looking into this area but the Government encouragement is not sufficient to give it a push. More is needed since its such an impiortant direction of evolution of the transportation industry.

Electric vehicles the ultimate future of Indian Automotive Industry

Technology comparison and operational pattern automotive manufacturers in India

In recent years Indian automotive manufacturers have come a long way when it comes to technology. Through organic growth, joint ventures and technology partnership the manufacturers have gained a lot of access of technology. But till date there is a huge difference in terms of technology when it comes to their western counterparts. Because of low cost manufacturing a lot of companies have transferred their manufacturing facility in Asia and India certainly got benefitted with that.

High import duty on fully build vehicles and SKD kit has forced to assemble all the vehicles in India. According to SIAM data almost 99% of the vehicles sild in India has been assembled in India. Some industry critique has suggested that the manufacturers have been importing component to India to get them assembled and sold in India. Since the component tariff is only about 7.5% they are able to get the profit where the technology and manufacturing is happening at some other place. This is partly true since India imports about $ 14 billion worth component (ACMA report) and at the same time exports about $ 10 billion worth component. Yes there is a difference of $ 4 billion. When you see that in comparison to $ 75 billion worth industry $ 4 billion is not very big. And the manufacturer importing majority components to assemble the vehicle is a very niche and small portion.

Engine the pain point of the industry

This particular pattern makes sure that market competitive components are in place in Indian automotive products. But when it comes to engine it’s a different story. Compared to Japanese and European manufacturers most of the Indian manufacturer have a inferior quality engine. This is one place Indian industry is very much dependent on western world. They either source engine or collaborate for engine or makes joint venture to get the access of engines. At the same time companies from the developed world have an upper hand on their operations in India since they totally control the engine area. To some extent the whole market is dependent for engine  technology on developed world.

In addition a lot of efforts and money is spent on tuning those products to suit Indian requirement. A lot of engine consulting companies make huge money in this direction.

Strategic need of the market to get rid of engine

India has serious fuel availability issue and at the same time have issue with the engine. When the whole world is moving towards the future, India should invest heavily on the possibility of removing the engine all together. Developed world need performance vehicles and electric vehicles certainly have limitation till date in that direction. But the Indian circumstances will make it easier to adopt electric vehicles.

I totally understand the infrastructural, the technology requirement and challenges the Electric vehicle industry have. But it is new in all countries now. Moreover we are the one who need it maximum.

Western world is using Hybrid vehicles as a transition from normal vehicles to electric vehicle but if India follows the same route then it will make the Indian market dependent for another additional 20 years. Directly jumping to electric vehicle India can avoid the whole trend all together. Making investment right from the beginning towards the direction of electric infrastructure will pay India in a long run.

In addition India’s current push in the energy direction makes it more aligned with the future goals. India’s transport need is going to increase in a exponential rate as the infrastructure improves and economy develops. To go ahead India need to skip the Hybrid vehicle phase.

Looking at the need from the above mentioned angle makes it absolulely necessary to use electric vehicle treand and avoid hybrid vehicle treand.

Fuel price, Indian mood and Automobile industry

India, one of the largest imported of oil is always vulnerable to the international oil price fluctuation. When oil price in international market fluctuates, Indian market, public opinion and political stability fluctuates as well.  One can not deny that the current government enjoyed a good political stability in India due to low oil price in the international market.

Import value of the crude oil, LNG and other petroleum products

According to the Petroleum ministry report (http://petroleum.nic.in/), Indian net import (as India exports a lot of finished products from refinery) of these products stand at INR 624508 crore (approximately $ 96 billion).  which is big compared to Indian governments revenue being about $ 420 billion (IMF data).

Fuel price effect on price level

Higher fuel price means higher transportation cost. This makes the goods at the consumer end more costly. The transport companies actually do not care about the increase in the fuel price because they simply transfer the additional cost to the customer. Not to mention this makes government to collect more tax and consumer to suffer at the end. In addition small businesses often take more advantage of this. They simply charge more from the customer by siting the rise in fuel price. If the fuel price increase by 5% they charge 10% more from the customer for more overall operating cost (fuel price is just one of them). Weakened Indian currency and high crude oil price in International market caused severe inflation in Indian market in 2012-13 and the people mood about the government changed.

Government subsidy

In general Indian government used to provide huge fuel subsidy to keep the public mood in favor. But day by day it started become more costly. Recently Indian government saw the opportunity of lower international crude oil price and slowly step by step removed most of the subsidy. Definitely its good for the industry and makes the industry more independent to decide the pricing but the overall Indian market is now more vulnerable to the oil price fluctuation shock.


So the choice of the vehicles should be such that its fuel efficient at least when an individual customer is buying. In case of transporters its still not a that big issue. When last time the fuel price started rising, Indian market saw a fall in the car price selling but the two wheeler market started growing. As the people who runs small businesses and need the vehicle for personal commuting for business started postponing car purchase in favor of two wheeler.

Effect of traffic on choice of vehicles in India

Once again I have to say Indian cities are crowded and there is a lot of traffic at the office times (morning 7 to 10 AM and evening 5 to 8 PM). Almost 60% of Indian office employees work 6 days a week. Almost all the Government offices and half the corporate offices and most of the small unorganized businesses.

Two wheeler industry

Usually most of the cases people live within 10 km of the office and in city traffic two wheelers are much faster than the car. In small towns which has a radius of about 3-5 km the two wheeler becomes an even more cheaper option. As a result India is worlds largest Two wheeler market. More than 80% of the automobile vehicles on road are Two wheelers. World's top 4 automobile manufacturer's (by sales volume) are predominantly in India. While Japaneese manufacturers did well, European manufacturers kept watching. Apart from Honda all the remaining manufacturers are home grown and now huge. Now when Africa and Latin America market is coming to the expansion mode these manufacturers have huge expansion plan for those markets. 

Low cost fuel efficient cars

High price sensitive customers, high fuel price has given birth of low cost fuel efficient cars. While inspite of the technological superiority and better engine European car manufacturers struggled a lot to succeed. Japanese car manufacturers through their joint ventures made a good fortune in the market but European players mostly stayed at the bay. The discussion of low cost and efficient car can not end without the name of TATA NANO. Though the model disn't succeed, but its definitely a praiseworthy effort.

Commercial transport

Large population and economically poor population has given birth of a bus industry that is very big in size. As on today out of top 5 bus manufacturers in the world apart from Daimler rest 4 are either Indian (Tata Motors and Ashok Leyland) or Chinese. In this sector also European vehicle manufacturers played a mare spectator role. Large road network on one hand boosted this sector at the same time smaller expressway network made the European vehicles extremely inefficient for this market. Expansion of the expressways may be a good sign for them but since this industry depend on service network, European manufacturers have a long way to go in this market. Recently Volvo made a good niche market entry and they are very successful but it is not a mainstream high volume market.

Performance vehicles

When a customer expect a  vehicle to perform they expect speed, Indian road network still lagging behind a lot in this direction. When the speed goes low, fuel efficiency suffers for performance vehicles. To adjust the fuel efficiency for low speed driving conditions the vehicle is no longer a performance vehicle.

Indian market chosen the low speed fuel efficiency market, at  least till now. Its the industry that has to mold into that.

Fuel price, Traffic and Cultural effect

To start with the obvious, India is a country of 1.2 billion population and one of world's largest oil importer. So its not a surprise that fuel price and traffic will effect the evolution of the Indian transportation industry. But that's not all, relatively poor economic condition, very different cultural nature, social structure and poor road conditions have shaped the automotive industry in a very different manner most of the western world see it.  In this discussion I will site the conditions first and then I will describe the evolution of the industry along those lines.

Lets begin with some relatively funny examples and experiences I saw of Indian society and culture. A culture very much unexplored by the west. Being an Indian, I am certain of that.

A Two Seater Car - A bad idea at least till today.

A lot of people will disagree with me for not understanding the value proposition of the product but in India, I seriously do not understand that. Problem is with three aspects space, speed and scrap value (resale value or to be frank, what to do with the car once its job is done). 

First space, we have a lot of population and naturally our families are big. Certainly, a two seater car is not for family, its either for a long drive with girlfriend at max. But interestingly Indian society does not work that way. On an average girlfriends get married at some point, and relatively Indian marriages are very stable compared to the western society and two becomes at least three. In Germany (I am sure in a lot of developed countries have similar situation), I have seen a lot of 35-40 age single or divorcee people who have significant financial and social condition to have a two seater car. In India, because of very stable marriages this situation is less. Now a days, the situation is changing slowly but the market is too small.

Second speed, 3 - 4 years back I was working with a Bus manufacturer and I got a project proposal that the bus should have a maximum speed 100 but average speed 40, and you have to tune the drive train according to that. I was new in the industry and the other projects I did for other continents, I thought that there is some kind of a mistake. Later on I found that, in the city, the traffic is so much that average 40 is good and in rural and smaller places the road condition is such that its best to keep them in 40. Though India has world's 2nd Largest road network, it has the smallest expressway among all the developed and developing countries. So, for a two seater car, the speed is not an advantage in that market.

Third, once you get any of these two mutually exclusive sets, whom do you sell the car. Its better to have a 4 seater and avoid one of these problems with a little emotional sacrifice.

There is not much luggage space !

Recently, I saw an article saying that the airline industry statistics suggest that Indians carry maximum luggage. No regret, we love that! When its our market industry has to adapt, and they do. 

In 2012, I was in New Delhi auto expo, I was going through a relatively expensive German car manufacturers stall. I saw a gentleman of about 25 age, looked sloppy (not really an 'European elegance' type), but if you have worked in Indian market you can tell that kid belongs to a family of money. He is a customer of that kind of vehicle. The gentleman, looked the car closely, sat in the driving seat again and again, while the marketing executive of that company was explaining him about different features and taking note of the feedback. Suddenly, the gentleman said, there is not much of luggage space. Once the gentleman left I spoke with the marketing guy also in his late 20's and I asked him 'I am sure you have received a lot of feedback like this today'. He literally expressed his frustration and said 'ya, sir, they don't get the motive of the vehicle' may be he is right, but I believe this is wrong. Articles suggest that lack of understanding and inertia to push EU and US vehicles costed Ford and Volkswagen very badly in Indian market. In-spite of superior technology and financial might they failed to make an impact in the Indian market.

Fuel price, cost and culture

Motorbikes are a very cheap transportation automobile in India, $1000, you get a decent new bike in India, and that's nothing! One of my colleague was planning to buy one bike and he was quite rich guy. For a same bike there was a fuel efficient and marginally better version bike there with $100 more cost. So some of us were discussing on a 'smoking break', we told him to take the fuel efficient one. We were having fun, he took out his mobile calculator, and with internet tool he started to calculate the break even for that additional $100. His purpose for that bike was to come to office from his home and go back. He found that for his application and current fuel price he has to wait for 3 yrs to get the $100 back (by the way oil price has fallen after that). And his calculation was flawless, we could not find a fault. We found a couple of days later be bought the low cost one. His argument was right there was no value addition for that minor little $100 for a relatively rich kid. In west people may not think that way but in India people does. As a result the market is extremely cost sensitive. A lot of diesel car models still struggling to make a cut because of this reason. People do calculate! and they calculate for there purpose of application.