India aspires for an aggressive Electric Vehicles (EV) future; a future where perhaps every third vehicle sold in 2030 in the Indian market is electric. Time-traveling into the future, if we were to gauge the success of India’s EV transition, unequivocally, a high-weightage metric would be—Did India manage significant localisation?
Localisation is a critical requirement for India’s EV transition, as it will be difficult to achieve the net positive gains of oil import savings, industrial growth and job creation without indigenous manufacturing of EVs. And while localisation argument has primarily been founded in these quantifiable economic gains, there is perhaps a much larger softer opportunity of ‘brand making’ which makes an even stronger case for India to pursue localisation. A parallel can be drawn with the IT industry which gave India an opportunity to establish itself as a globally prominent brand in the sector.
The progress and achievements in the IT sector over the last two decades have established a brand for the Indian IT industry—that India could develop globally competitive IT products. And while the contribution of the sector has grown from about 1 percent to 8 percent in the last two decades, it has had a multiplier impact on stimulating ancillary growth in other sectors of the economy.
Locally manufactured EVs provide a similar ‘Made in India’ branding opportunity associated with high-quality EV products. Given the Prime Minister’s call for a self-reliant India, the nascent Indian EV industry today has an opportunity similar to what the IT industry had in the 90s. With strategic branding and marketing, Made in India EV products have an opportunity to create the local and global pull due to a strong ‘emotional’ consumer sentiment as well as quality.
The realisation that India will have to localise the sector isn’t new. For the government, the experience of implementation of the FAME-I Scheme and other preceding schemes has brought to fore the criticality of localising. For industry, the uncertainties and risks associated with a 60 to 90 percent import-dependent supply chain have been a concern and roadblock for consequential investment decisions.
When FAME II was kicked off in April of 2019, localisation requirements of 40-50 percent were made mandatory to avail the incentives. Replaced by a Phased Manufacturing Plan (PMP), adherence to PMP localisation requirements has not been easy, especially for the electric two-wheeler segment where uptake of 10 lakh vehicles is targeted by 2022. Mid-way into the Scheme, of the nearly 50 plus electric two-wheeler models being produced in the country, only three L2 and fifteen L1 models qualify FAME II localisation requirements, as on date.
Much has been said and debated by the industry and government experts on localising EV supply chains, especially over the last few weeks, but the critical question remains—what is meant by localisation in the Indian context and what it would take to realise the self-reliance aspiration for an expectedly Rs 50,000 crore EV market of the future?
We propose a 5-point framework to lay strong foundations for a disruptive yet phased localisation.
Localisation beyond hardware: Harness India’s IT strength in the EV sector
While the IT industry can be an inspiration for creating a strong domestic EV industry and brand, the current strong standing of the IT industry also needs to be leveraged as India’s unique strength in the development of EV products. So far, India’s EV localisation opportunity has been viewed from a hardware perspective of metals, cells and components. An equally strong opportunity lies in the software part of EVs.
Electric vehicles unlike their ICE counterparts will be much smarter. Software crash tests will be as critical for EVs as vehicle crash tests. Indigenous development of software for smart, connected and automated EVs should hence be leveraged as an opportunity in a manner that makes India harness its IT prowess and target global leadership than playing just a catch-up.
Disruptive and ambitious roadmap for building technological competence
While the need for localisation has been talked and the Phased Manufacturing Plan (PMP) provides guidance on what to be localised by when; many EV players are choosing not/unable to follow it. There is an urgent need for putting together an ambitious roadmap that can help address the barriers to localisation in a disruptive manner. Ecosystem players need to come together and identify the exact barriers and specific solutions required to achieve maximum localisation with the highest quality within a timeline of the next 2 years.
The future EV components industry of India will comprise of both existing and new players. The roadmap for localisation has to ensure that the barriers for existing players, largely in terms of R&D and technology transfer, are addressed. At the same time, the new players should find a level playing field to develop competitive products. It becomes critical for new players, as they will have to find customers, as against existing players who will be in a strong position having assured clients.
The EV components space is likely to witness significant mergers and acquisitions. The industry will make bold investments in technology and components given the nascency of the industry and demand. It will hence be critical for the government to support the industry with a policy environment that enables Ease of Doing business with lesser bureaucratic and logistics hassles.
Target cost-competitiveness of Indian EV supply chain
The sheer size of future mobility demand and automotive market in India gives confidence in investing in EV technology. Supportive policy frameworks in the form of ‘carrot and stick’ can unlock a significant domestic EV market in segments like electric buses, three and two-wheelers, taxis and delivery vehicles. There is a need for consistency and ensuring scale to bolden the industry’s interest and investments. The scale would have to be in millions than thousands if an accelerated localisation is the real objective.
Seize the opportunity of building Indian brands
As highlighted earlier, branding is the latent variable that can change the way India has so far viewed the EV opportunity. It inspires a narrative of global brand making that can reset the ambition and investments for EVs. India will have to ensure Quality and Performance as the ultimate goals and establish the credibility of India made products that outcompete the omnipresent Chinese products. The opportunity to build Indian brands is significant and timely given the goal and also the current geopolitical scenario.
Gain confidence of investors in the Indian EV market
The recent slowdown in the automotive industry and the impact of COVID-19 have affected the confidence of investors in the Indian EV market. While there is traction in the angel funding space, it also has to translate to growth capital funding. It is critical to signal policy support towards India’s strong and continued commitment towards an EV future. VCs and lower finance costs will be critical, as the sector has largely been driven by start-ups and the technology is nascent.
India is strongly positioned to embrace an accelerated transition to EVs. It will be critical that the higher penetration of EVs comes along with increasing levels of localisation that deliver the economic gains of the transition and establishes India as a global leader in EVs. Given the various stages at which manufacturing of EVs and their components stands today, localisation to foster company formations could manifest in different ways—completely designed and made in India components and products, joint ventures of global companies with Indian companies, and foreign companies making in India. In whatever form localisation initiates/shapes up, it will be critical that the brand ‘Indian EVs’ captures the global stage with their hardware and software strengths and their connect with the environmentally-conscious consumers.
—Akshima Ghate is Program Director at RMI India and Anand GCP is COO, Micelio. The views expressed are their own and do not reflect those of the companies they are associated with.
