Supparoek Sawangwong, Asia Powertrain Analyst
14 August 2020
14 August 2020
Can India’s fledgling xEV market survive in the post-pandemic era?
The impact of COVID-19 is not limited to the case count alone. In fact, the associated impacts of economic recession, reduced quality of life and political conflicts are perhaps the real enduring issues. The automotive industry has suffered a sharp blow, with production globally suspended for extended periods to control the spread of the virus and adjust output in line with the plunge in demand.
India is no exception. The rise in infections and the economic effect of the nationwide lockdown have severely impacted the automotive market and our long-term forecast. Sales collapsed to zero in April, followed by -85% in May and -47% in June, with a full recovery set to take many more months. India’s xEV development has suffered a major setback and the government has had to reassess its priorities, not least economic recovery.
Meanwhile, the enforced closure of so many businesses and companies has seen the unemployment rate in India spike to a record high. An astonishing 120 million people were jobless in April, while plummeting consumer confidence is dampening spending. As consumers opt for caution under the ‘new normal’, discretionary purchases, such as new vehicles, may be postponed, which will disproportionately affect sales electrified vehicles, given the influence of price on buying decisions – particularly in emerging markets like India – and electrification generally adds cost.
For their part, automakers will be looking to prioritise spending and new product plans, redirecting their focus to more profitable conventional and flagship models, with some likely to reconsider the introduction of new xEVs. We still expect several new BEV launches from major OEMs this year, but deferrals cannot be ruled out
Another obstacle to xEV development/sales arises from the steep drop in global oil prices. According to the IEA, global oil demand fell by 10.75 million barrels/day (-11% year-on-year) in H1 2020, matched by a similar decline in retail prices, with demand forecast to contract by 5.1 million barrels/day in H2 2020. As India is a net importer of oil, motorists have benefited from considerably cheaper fuel prices during the crisis, thus threatening one of the advantages of xEVs as the potential cost savings available when fuel prices were higher have been greatly eroded. The government has therefore had to come up with new strategies to promote xEV usage, including tough new emissions standards on ICE vehicles. This is a high-risk gamble, however, as it could have a detrimental effect on the industry if there is no tangible xEV uptake, or if the inducements for investment in the sector are not sufficiently enticing.
The government’s aim to shift to 100% BEV sales by 2030 was revised some time ago, albeit to a still challenging 30%. It will require substantial investment in the supply of clean energy to ensure that pollution is not just shifted from vehicles to power plants. Coal currently fuels over 70% of electricity generation in India, the charging infrastructure will require massive funding, and consumers will need direct financial incentives to offset high BEV sticker prices. So, it is possible that countries like India will redirect their focus toward hybrid electric technology and only move to BEVs in the longer term. This would certainly be a more realistic approach, particularly when considering consumer purchasing power, buyer perception and the lack of charging infrastructure.
Travel restrictions during the virus crisis and the decline in road transport led to a dramatic improvement in air quality in India, as elsewhere, underscoring the impact of pre-pandemic transport patterns on urban environments. The cleaner sky above the India Gate in Delhi during lockdown (as shown above) is a stark reminder of what might be achieved with the right policies.
The existing schemes designed to foster xEV development in India are doing little to attract meaningful investment, or lure buyers away from the conventional sector. Supportive measures to build a resilient xEV ecosystem are now vital, particularly when it comes to vehicle affordability. If the government fails to adapt its policies effectively, it could be decades before we see clear blue skies over India’s megacities.