UP's sops for hybrid vehicles irk EV companies, add to industry's June sob story

New Delhi: The Uttar Pradesh government's recent decision to provide incentives for hybrid vehicles has irked electric vehicle (EV) manufacturers, especially as it comes hard on the heels of a plunge in June sales. It's also divided the industry, pitting those that are betting on pure electrics such as Tata Motors against those that prefer the hybrid route, like Toyota and Maruti Suzuki.

Sales of electric cars in June plunged 13.5% from the year earlier, having suffered a marginal drop in May, triggering fears that the Indian market may be following global trends. After last year's euphoria, domestic sales slumped to 20% growth in the January-June period to 46,845 units. That's down from a 135% surge in the same period last year, prompting Tata Motors and others to recalibrate expectations.

UP Govt Holds Meeting with Auto Cos

Union minister Piyush Goyal expressed his concern Wednesday, saying he had been "pained" to learn of the EV sales drop. Companies such as Tata and Mahindra have not commented on the UP government's decision to extend incentives on hybrids. The state government is also learnt to have held a meeting with automakers Thursday to discuss a road map for promoting EVs.

According to vehicle registration data collated by the Federation of Automobile Dealers Associations (FADA), electric car sales declined to 6,894 units in June from the same month last year. The drop is the steepest in almost two years since FADA started reporting monthly EV sales data.

While carmakers like Maruti Suzuki are hoping other state governments will follow Uttar Pradesh, electric car manufacturers said this will undermine their efforts with sales under pressure due to concerns over high prices, lack of charging infrastructure and range anxiety.

"The government could have never transitioned from BSIV to BSVI, if they had taken into resistance from some players in the industry. If we are to move towards carbon neutrality by 2070, we have to go all electric," said a senior executive at an EV maker. "Such ad hoc decisions by the state government, which are not aligned with the objectives of the Centre, will only slow down the move to zero emission mobility."

Uttar Pradesh has waived registration charges on hybrids until 2025, leading to benefits of Rs 2-4 lakh depending on the model. Hybrids accounted for a market share of 2.3% in June versus 2.2% for EVs. Hybrids are powered by a combination of batteries and fossil fuel.

Of the dozen or so carmakers selling electric cars in the country, more than half reported a drop in sales last month. While sales at electric car leader Tata Motors fell 21%, those at Hyundai Motor India slid 62%. BMW, Kia and Volvo witnessed a decrease of 50%, 7% and 61.5% in EV sales, respectively, in June. To be sure, these are on a low base and the number of electric models are limited, a lack of choice that's been hindering sales. There are only a little more than half a dozen electric cars priced up to Rs 30 lakh currently, limiting choice for customers at the more affordable end of market.

"Charging infrastructure is one of the big barriers restricting large-scale adoption of EVs and limiting its penetration," said Shailesh Chandra, managing director of Tata Motors Passenger Vehicles and Tata Motors Electric Mobility. The company evaluated estimates of market size by various agencies and the state of ecosystem development to take "a more realistic call," he said.

With 20% EV penetration estimated by 2030 for the industry overall, Tata Motors itself is targeting 30-40% of its sales to come from electric by the turn of the decade, down from initial estimates of about 30% for the industry and 50% for Tata Motors. Tata Motors accounts for 70% of electric cars sold in the country. Maruti Suzuki, which will launch its first EV this year, expects such vehicles to comprise 15% of its sales by 2030. Global consultancy firms such as Deloitte are of the view that with governments worldwide scaling down upfront incentives per vehicle to customers, EV sales are likely to comprise 10-14% of new car sales in India, down from about 18% estimated prior to the pandemic.

Electric two-wheelers haven't been hit as badly - they grew 72% to 79,530 units in June, accounting for 5.8% of the market.

Sparse charging infrastructure and prices are deterring new buyers, despite the higher running costs of petrol and diesel cars. India has about 12,000 public charging stations, compared with 68,000 fuel stations dispensing petrol and diesel. On the highway, range anxiety is ever present.

Take the experience of Arindam Das, CEO, consumer credit and MSME loans, DMI Finance, who was driving his luxury EV from Delhi to Jaipur at a time when temperatures in north India were hovering at 45 degrees Celsius. Less than 100 km from his destination, there was a precipitous drop in range, forcing him to nurse the car along without the AC.

"I realised later that electric car batteries run optimally at 15-34 degrees Celsius. In extreme weather conditions, the range drops dramatically, by as much as 20%," he said. "The state of charging infrastructure is appalling. We could not find a single charging station at fuel pumps along the highway."

There are variables in EV adoption that are beyond the control of automakers, said Santosh Iyer, managing director at Mercedes-Benz India.

"Electrification is very important for achieving carbon neutrality and in that sense we will do everything in terms of product launches," he said. "Having said that, the two other stakeholders also will play a role - one is the customer in terms of the acceptance of this technology and the other is the government because taxation, incentives, fuel efficiency targets will all determine how soon this transition will happen."

While the company is "strategically focussed, but tactfully flexible", the government should also ensure policy continuity and extend reduced goods and services tax (GST) of 5% on EVs at least for 10 years, he said. Mercedes-Benz is looking at facilitating customer access to more than 1,000 charging points across the country via the FICH (find charger) app, from 436 in November 2023. The company is also looking at doubling its EV portfolio and will have on sale half a dozen models across segments to broaden customers offerings by the end of 2024.

Similarly, Chandra said Tata Motors is looking at expanding charging infrastructure through "open collaboration" with stakeholders.