The Indian automotive industry is always on the move. Despite some hurdles that threw a spanner in the works — such as Covid-19 and the chip shortage — it has emerged more resilient than before.
Our auto industry, which is the third largest in the world today, is expected to be worth USD 1 trillion by 2035, as per Arthur D Little. A couple of months ago, the management consulting firm released a report titled ‘Transforming India into a global Automotive Hub: Roadmap for the Automotive Ecosystem,’ where it highlighted that India can unlock an additional USD 400 plus billion value by transforming into a global automotive hub.
At the sidelines of this event, Dr Andreas Schlosser, Partner and Global Automotive Leader and, Karl Markus Doerr, Senior Board Advisor and Industry Expert in Automotive, Germany, Arthur D Little, explain why they are betting on India, emerging trends and technologies that will shape the automotive landscape, and how the ICE versus EV strategies in different parts of the world will play out.
The inflection point with regards to EVs will vary for countries. When do you see it hitting in India and when can India be self-reliant?
Dr Andreas Schlosser: We have seen that in all the markets that have made progress, government incentives, be they direct or indirect incentives, have been the accelerant. But you reach one point in time when the market tips. This is where typically the incentives are phased out, as has been experienced in Norway and Germany. And we already see this in Norway. India is still in the phase of need for activation. This means that government incentives are critical. Again, if we were to compare to global markets, right now in Europe, in Norway it’s much higher, but let’s say in the markets that have reached the tipping point, like Germany, new sales registrations are about 20-25 percent.
This is the tipping point where it becomes more of a customer-driven market. Because you see a lot of EVs now on the market. People have experienced how it works. Of course, it has to go hand in hand with infrastructure development.
But when India reaches, let’s say, 20-25 percent, which will take some time. Maybe it’s going to be 15-20 percent, this is going to be the tipping point, probably. And then it’s going to start becoming a self-accelerating market.
Karl Markus Doerr: I think the tipping points really depend on the segment. For two-wheelers and three-wheelers, it’s a market that’s going to turn very quickly to electrification. Passenger vehicles, I would say this will be around 2030.
When do you see it in India?
Karl Markus Doerr: I would see that for India, just after 2030 or so, that kind of penetration rates of 20 percent will happen. The only thing that I would say about incentives for passenger vehicles is that we are talking about a lot of money. If we’re looking at the incentives that are given in Europe, it was Euro 9,000 per vehicle. Euro 9,000, that’s a lot of money. That’s USD 10,000. And then you deduct Euro 9,000 and it becomes kind of a competitive vehicle. That’s kind of the entry ticket. But that’s the size of incentives that we’re talking about that move the needle. And the market is responding to this lower level of incentives. What I’m saying is for incentives to move the needle at this point in time, they actually need to be quite significant. And it is possible for some countries to provide this money. For others, it’s more difficult.
If we look at light commercial vehicles, I think those that are really light, the inflection point is relatively close. Particularly when it comes to delivery, medium duty, heavy duty. I personally see this as quite a long-range, long-term topic in India.
Price sensitivity varies from market to market. And that in a way also will determine the market. That’s the inflection point. And the second is enforcement. Where does India stand in your opinion? And do you think that eventually it is going to call for enforcement, which is what EU is going for?
Dr Andreas Schlosser: The price sensitivity is very clearly there. And many people that buy cars do not think about total cost of ownership (TCO). That’s the point. TCO is something that fleets think about. Without the enforcement, the market will not transition. Norway is the best example. I don’t want to say Norway can be a blueprint for other markets because it’s a very special environment with a small market and high renewable energy usage.
But Norway understood from the very beginning that incentivising the vehicle and the auto industry is good. But at the same time, you have to start incentivising infrastructure development. And this is where we are currently catching up. It’s a typical chicken and egg problem. If you don’t have a public infrastructure, you’re targeting only a small portion of the market. So public charging infrastructure is going to be a must.
Karl Markus Doerr: It’s also extremely important for automotive players to get the prices down and the cost down. One important way is actually how you sell vehicles. And most vehicle manufacturers rely on a dealership based model where they sell the vehicle to a dealer.
If you move direct to consumer, you can cut easily 10 to 15 percent out of the cost of the vehicle. This is massive and offsets a lot of the battery cost. And then I think again it’s playing it right and playing the scale game right, and having much less cost, and having a complex vehicle. If you look at what some of the Chinese players or some of the startups are doing, they have products that you can configure in three clicks on the internet, which also fits very well to a direct to consumer model. And in doing so, you reduce a lot of cost, internal cost as well. Maybe on the development side, but also in terms of sourcing. You can be profitable with a battery electric vehicle now. And you could actually sell it without incentives. The problem is that most companies take the traditional approach. And this doesn’t give them the competitive edge that some of the new players have.
So I think there’s also something that the automotive industry overall needs to embrace to get the cost down
and get the prices where they need to be. And not just rely on incentives.
For any new technology there are early adopters. Do you think that the early adopters are satiated now? Hence you are seeing correction in markets like North America, UK and China as well.
Karl Markus Doerr: That’s gone. It’s becoming mainstream.
Dr Andreas Schlosser: It has to be mainstream. But it goes together with the inflection point. Actually the EV penetration in Europe started counter-intuitive from the top. There are some OEMs that tried to start from the bottom. It was the BMW i3. Which was not a big success. But Tesla came in from the top. And then actually it trickled down. So these were all the early adopters. What we have now in Europe is you have a very nice mix of affordable vehicles across all segments. From the A segment up to the D segment, or even the E or F segment.
Karl Markus Doerr: So having more models is critical.
Dr Andreas Schlosser: This is also shown by our GEMRIX data. The markets that have a wide range of model across different segments are faster in adoption.
It’s going to happen in India. I think the years 2025 to 27 is when we will actually see proliferation.
Dr Andreas Schlosser: Absolutely. And we have seen the OEM pipelines. Next year and the year after, we will see many new models coming to the market. And we strongly believe this will be another push for the market, another push. Because the scale will go up. You have more choice as a consumer.
Coming to the grid. What do you think about the ability of the grid to withstand load, the moment the charging infrastructure proliferates? What has your experience been in Europe and China especially?
Dr Andreas Schlosser: We have worked on various projects in the charging space. And actually at least in China and in Europe, the grid is very important. It’s very easy to put 5,000, 6,000 charging stations. That’s not the issue. You can do this. The grid connection and the power you need at one point at that particular location is going to be a challenge.
Karl Markus Doerr: Of course for battery electric vehicles actually to be an environmentally sound proposition, the energy generation itself also needs to be Co2 neutral. If it is coal driven you’re actually not helping yourself that much. Of course it does help local emissions in the city. That’s still very helpful. And you don’t have any toxic emissions.
Dr Andreas Schlosser: Coming back to your question on China. We did a calculation of the end to end Co2 footprint of an electric vehicle in China. And if you consider where the energy comes from actually, the Co2 footprint doesn’t look very good.
Karl Markus Doerr: What’s important is that battery electric vehicles have a front loaded Co2 footprint. Because a lot of energy is actually consumed producing the battery. So it’s extremely important that this energy is produced in a carbon neutral way.
Probably India may be the last market with ICE. What is your take on the China Plus One strategy? Do you think this strategy gives India the opportunity to serve the global need?
Dr Andreas Schlosser: There will be ICE in some parts of the world for the next 10, 15 years. And that creates an opportunity for India.
No doubt about it. And that’s where these optimistic numbers have been derived from.
Karl Markus Doerr: Actually, not just for India. Also, for China, if you look, China is moving rapidly to electrification. But they have not said okay, there will be no ICE sales anymore in 2035, like we have in the EU. So internal combustion engine development still continues in China. And it will continue in India. And there will still be a significant market. India can play a role in that. But also, in terms of funding its own development, I think this may actually help to be successful in this side. And I would also say that there are ways to make internal combustion engines more environmentally friendly. There’s flex fuels, there’s hybridisation obviously.
What is the future of e-fuels in a country like India?
Karl Markus Doerr: I think it depends. For me, the question is how economically efficient a country like India can make these fuels. And I do think that’s actually quite nice about e-fuels is that you can kind of go from gradually increasing them by blending it to whatever percentage is right.
This interview was first published in Autocar Professional’s December 15, 2023 issue.
