EV Conundrum!

 

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I am back to my favourite topic, Electric Vehicles or EV! A couple of days back there was a meeting called by NITI Ayog to discuss and decide EV policy for two-wheelers, in India. I am going to write only about the Indian scenario. My observation is that the electric four-vehicle of similar specification as the IC engine costs almost double the price. Plus per charge range of these vehicles is about 110 km. The specs are not good enough for the car to be used for out of station travel. With these limitations, it is going to be challenging to sell such vehicles. But in two-wheelers, I have observed that the price of EV’s is comparable with IC engine version. Distance travelled using two-wheelers is much less compared to four-wheelers. In India, parking two-wheelers at home is manageable compared to four-wheelers.

There are many angles to this issues. First and foremost is the fuel. With limited petroleum product reserves, there is bound to be a tough situation for the whole world if no action is taken, we will have difficulties. Add to this a new dimension; the US has threatened India to stop buying oil from Iran or else! If the US is so much worried about the whole world vis a vis Iran, then they should sell Oil to India at the same price as sold by Iran and that too in Rupees! But the US can get away with anything in diplomacy.

Petroleum product based fuels are adding to pollution is a known fact. The whole world is trying to reduce pollution by tightening the pollution norms, but apparently, there are limitations of investments to achieve the goals. Again the US has opted out of the body which is trying to track pollution world over. Again, it is the act of a bully.

All the nations are trying to reduce pollution in their cities and India is also trying its best. NITI Ayog meeting was held for the same purpose. Four-wheelers are still miles away from reaching the balance between the price targets and the cost. As four-wheelers will be expensive, their sales will not match current sales volumes at a price expected today. The second most crucial aspect in India is the challenge of charging the car batteries. Majority of the cars in India are parked in public places. Many of them are parked on roads and streets. How to provide a facility to charge batteries for such vehicles? Do we provide charging points on roads like we have parking meters? I don’t think that is a practical way of doing it. Another issue is that fast charging techniques are coming up but are still not good enough. With such limitations, NITI Ayog is trying to put pressure on the two-wheeler segment.

As already discussed, EV’s in this segment will have a comparable price, and because of lesser parking issues, charging the batteries using home electrical outlets may be possible. Charging is manageable; costs are manageable, and the number of these vehicles produced is very high. The number of two and three-wheelers manufactured in the latest financial year is 30 million plus. Total of fuel used by these vehicles is massive.  If totally converted to EVs, there can be a significant impact on pollution.

There are two groups in this segment. First and the main is the group of established manufacturers like Honda, Hero and Bajaj. They are already developing EVs. The second segment is the startups who are in the process of developing EVs. They have no hangups and are trying to support the government. But the established ones have the issue of scaling up. NITI Ayog is insisting that by 2025, majority two-wheelers manufactured should be EV’s. The Giants have a vast experience in manufacturing and can visualise or foresee the issues. Startups really don’t have manufacturing expertise and experience. They probably do not understand the meaning of manufacturing 2.5 million vehicles a month.

Now here is a complicated situation. Established manufacturers have to keep on producing IC Engine vehicles and ramp up EV production. Tremendous efforts and money will be needed. Startups may know the EV technology but do not have the wherewithal to manufacture one hundred thousand vehicles a month. Selling these numbers without the right experience is going to be very tough. What about funding? They are solely dependent on financing by VCs. Today I read an article about VCs trying to go away from electric vehicle manufacturers, in China, as there are too many variables. These startups will never get bank funding. Don’t forget that even Tesla is still a VC funded company! They are already facing production bottlenecks, and their sales are going down!

Will Lithium producers make a cartel like the petroleum cartel? It is a million dollar question. India does not have Lithium reserves, but China has done brilliantly. They have taken controlling shares in many mines across the globe. Till foreseeable future, it looks like the Lithium, and to some extent, Cobalt is going to be the key elements. Their control will be the key to success.

https://www.mordorintelligence.com/industry-reports/india-lithium-ion-battery-market

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The cost of the battery pack was the US $1000/ kW-hr in 2010. In the year 2016, it came down $273. At this rate, the EV’s will become affordable over a period. By 2020 it is expected to be sub $200/. By 2026 the price is projected to be $100/. But till that time it is going to be a tricky question about change over. Those who can afford will buy the EV’s, but the mass production models will take some time to become affordable. In the countries, where parking of cars is an issue, it is difficult to predict what the solution will be.

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One pertinent point discussed by NITI Ayog was that if the pollution goes out of hand, then the courts will intervene. Once that happens then, the discussion will be between manufacturers and the courts. NITI Ayog suggested that some policy decisions need to be taken while interested parties are involved in the debate; it will enable both sides to come to an excellent resolution.

It is more of a chicken and egg situation. It is known that EVs are good for pollution management. On one side, nobody even knows which startups will even survive five years hence. Hence there is no point in putting your money on them. But the existing giants have their issues. They need to run their current business, which has its unique problems. They have to simultaneously scale down and scale up for old and new business. Hence they have shown their apprehension with the year 2025. How will they come out of this conundrum is anybody’s guess.

Are Electric buses the real solution for pollution control and to take people away from personal vehicles?

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Do we have it in us?

Historically, in the last two hundred years at least, we have seen nations moving from Agro Based economies to Manufacturing economies to Service based Economies. The latest classic example of this is China. From 7th decade in the last century, till today they have shown fascinating growth and China has become the manufacturing hub of the world. India was late in this transformation and we were forced into liberalization by the precipice we reached in 1992. India had no money to pay for foreign goods/debts and had to move their “family gold” (it is the gold stock that nations hold for such situations) abroad to borrow the money. Rest as they say is history. 

We reached a growth rate between six and eight % and the effect of that growth is seen all over India, in the last 25 years. But there is a twist in the story here. India has not exactly skipped the manufacturing phase of the growth but it appears that we are jumping more towards the Service based economy. I was wondering why this is happening and as usual, found that this is very complex to understand and even more complex to explain but still I am venturing into trying to explain.  

First and foremost, I feel that with the internet around and excellent connectivity world over, we all know what is happening anywhere in the world. What new products are available, what better gadgets are available is known the world over,  very fast. So, aspirations of the people change very rapidly. But the generations don’t become rich in such small durations. With 8% kind of growth and the speed of growth, this change is even more lopsided than in olden days. Rich are becoming richer faster and by leaps and bound. The disparity between the rich and the poor is galloping rapidly.  This is where the comparison between China and India always comes into the picture. There is no question that China has done much better than India during this period but at the same time, there are certain human aspects that need to be understood. 

China still has a lot of poverty but with the authoritarian government, they make sure to hide this fact. If required, they block websites which try to display such things. Beijing does have a large poor area, well hidden from prying reporters. If any reporter tries to break the government diktat, the reporters get thrown into jail. China simply crushes uprisings or behaviours they don’t like. In India, we are opposite to that. We have people in our society who love the display and discuss India’s poverty by making an argument about freedom of speech but the main reasons are always political. We have this history. In the olden days, 60’s in the last century, we had people like Satyajit Ray who took pride in producing films which advertised India’s poverty. By no means I am saying not to discuss our poverty, in fact, we as a nation should accept facts of life then only we can improve, denial mode is not going to help anyone. But pride in showing poverty is a bit too much.  

With an authoritarian government, it was very easy for China to declare one-child policy. This has brought down population growth rate drastically from 90’s of last decade. This helped China improve per capita income. In India, we tried family planning but it did not succeed as it was done half-heartedly. In poor strata of the society the family planning was a disaster and hence our per capita income showed an increase but not to the extent China could show!  

Government policies about manufacturing, imports and exports have changed very slowly over a period. With this, there was not much incentive for global giants to be in India. By the time they started coming in the bigger way, we see the reversal of trend due to other reasons. Electric Vehicles! EV’s are changing world scenario rapidly, though we may not see many EV’s on road for next five years, the development and investment patterns of these giants are now changing and trying to adapt to their new global strategies based on EV’s. India is not a priority for them! For their own reasons GM and MAN trucks have withdrawn from India and some more are expected to do so. But what happens in China? India’ pride and numero uno, Suzuki has completely withdrawn from China. In India, its share is more than 50% but in China, it was less than 1% of the market! This indicates that Chinese and Indian market requirements are poles apart. Hence, bigger and larger want to be in China and not India!

Another thing that happened in between was Y2K. I am not still sure if it was a real problem! Not a single failure of any system was declared in the world when on 01/01/2001, the Sun rose in the sky! To me, it was more of hype than the real problem. Indian service company giants made a real killing out of it! There came up new industry czars and they popularized the culture of white-collar subcontractors. It was good for the country that finally we started making big money. We started to have a society of young millionaires initially in Rupee terms, then in dollar terms too! Life has been Roses all the way. So, why bother to disturb the bandwagon.

There were some hopes in the industry when small companies like Quick Heal and Tally started making software products but this trend never caught up for the fear that we will lose on easy money. Yes, there appeared to be the trend which showed some changes a couple of years back. But these were due to one Mr Trump who started changing visa rules for our service giants. Not because the Giants wanted to change their ways and go up the value chain! What’s in a name? As long as hot dollars keep coming in the kitty nobody is bothered. Even in the IT industry where we supposedly have thousands of trained manpower, we have missed on things like IOT, AI, the Virtual reality which are already on the way. Are we ready for this? Using these new things company’s world over are creating “products”. Do our glorified contractors have the gumption to take up the challenge? Do they have will to fight it out with Silicon Valleys of the US, Israel? Or do we want to remain service providers to these new product companies? I am hearing the names like Tally and Quick Heal of the new era but I am honestly doubtful that big shots will take it up. Probably, it is better to be the doyen of the industry with billions in the pocket, giving talks blah blah blah. Why bother about being a struggling product creator?  

I am always positive about everything, but I am really not sure of service providers switching to a new avatar of products manufacturer. There are always very few Steve Jobs and Bill Gates! India has already jumped to service industry in the transition!