India’s electric vehicle industry needs a regulatory mandate for production and sale of e-vehicles, says new assessment from CSE

This will help vehicle manufacturers increase supply and diversify e-vehicle models 

Incentive schemesfor e-vehicles may have increased annual sales, but share in new registrationsremains less than 5 per cent 

  • More policy instruments needed to scale up the market, build ambition
  • Zero Emissions Vehicle (ZEV) mandate that sets targets for a percentage of annual production and sales of EVs needed
  • CSE’s consultation with the industry representatives and other target groups highlights varying degree of support for this strategy; stronger support from two-/three-wheeler industry
  • Doable, as the industry expects faster growth in EV market in next five years
  • Possible to start with a mandate for a small percentage share in 2025 and ramp it up to meet higher share in 2030
  • ZEV mandate, as seen globally, can help expand and diversify product range, provide roadmap for innovation and investments, push down prices, promote investments in promotion and charging infrastructure, and build confidence of investors and consumers
  • Industry can earn tradeable credits to meet the target flexibly and earn revenue
  • India needs to tighten the fuel economy standards for all vehicle segments that will require more EVs in the fleet to meet the targets
  • Without these strategies, difficultfor India to meet its commitmentson zero emission transition for low carbon transport and clean air  

New Delhi, January 16, 2023: Despite various incentives that India is providing to popularise electric vehicles (EVs), the share of these vehicles in the total number of new vehicles registered in the country is a miniscule 4.72 per cent. What is urgently needed is a regulatory mandate for the vehicle industry to have a certain percentage of their production and sales as zero emissions vehicles (ZEV) – says a new assessment from Centre for Science and Environment (CSE), released here today. 

Even though industry representatives from different vehicle segments – two- and three-wheelers, cars and buses -- have taken a varying and conditional view of the prospect of implementing a ZEV mandate, nearly all have supported this strategy. This was evident in the course of consultation meeting and dialogue organised by CSE with the vehicle manufacturing industry, government and other target groups, with technical support from CITI Forum, a think tank. 

The CSE assessment comes in the backdrop of the hype created over EVs, with almost every auto major showcasing EV models at the ongoing Annual Auto Expo in Greater Noida, near the national capital. 

“It is clear that in addition to incentives for consumers and fleet operators to purchase EVs (such as FAME II, or Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles and EV policies of state governments), an additional lever of ZEV mandate that requires manufacturers to sell a minimum specified number of ZEVs as a share of their overall sales in the market is necessary to push the zero emissions transition. As seen globally, this can help increase and diversify the product range, provide a roadmap to the industry to plan innovation and investments, push down prices, stimulate industry investments in promotion and charging infrastructure, and build confidence of investors and consumers,” says Anumita Roychowdhury, executive director, research and advocacy, CSE. 

This is needed to meet India’s intended targets and global pledges. These include the ministerial announcements of 30 per cent electrification by 2030; NitiAyog’s ambition of 70-80 per cent electrification of the two- and 3-wheeler markets by 2030; and India signing on to the global zero emissions vehicle declaration of 100 per cent transition by 2030-2040 with specific mention of two- and three-wheelers. India is also a member of theZEV Transition Council that represents 17 of the world’s largest vehicle markets. 

In addition, as many as 21 state governments have notified EV policies with varying targets, incentives and mandates for infrastructure. Even the Society of Indian Automobile Manufacturers (SIAM) has stated its voluntary target for 40 per cent of new vehicle sales by 2030 and all new vehicle sales by 2047. 

Key highlights of the assessment

Besides the consultation with the vehicle industry, CSE conducted a dialogue with urban transport experts and state transport corporations, besides a retail consumer survey.This was backed by an assessment of markets and price trends and a review of policy instruments like the ZEV mandate and fuel economy regulations as accelerators for ZEV transition. 

Share of EVs in new sales picking up from a low base, but needs faster growth to meet targets: Currently, as per the VAHAN database of the Ministry of Road Transport and Highways (MoRTH), the share of EVs in new vehicle registration was about 4.72 per cent in 2022. The market is led by two- and three-wheelers. In the overall EV stock registered in the year 2022, 62.34 per cent were two-wheelersand 33.65 per cent three-wheelers. E-rickshaws formed the major share of the electric three-wheelers at 86 per cent. Four-wheelers were 3.77 per cent in the total EV fleet registered in the country. Buses and the goods segment were 0.19 per cent and 0.05 per cent, respectively. The next level of challenge is to expand electrification in all vehicle segments. 

Committed demand under FAME II yet to be fully realised: Targets set under FAMEII are yet to be fully realised. As per details put out in December 2022, against the target of 10,000 e-two wheelers, 6,630 have been sanctioned; against 55,000 commercial e-four wheelers, only 5,375 have been sanctioned, and against 7,000 buses, 3,738 have been sanctioned. Only the three-wheeler segment has over-reached the target of 50,000 and reached more than 70,000. Additionally, a new tender of 4,675 buses has been floated by the Convergence Energy Services Limited (CESL), a joint venture public sector company under the Ministry of Power.   

As price parity of e-two/three wheelers with internal combustion (ICE) vehicles improves, their product diversity gets higher than cars: With FAME II and state-level incentives, price parity of EV models with IC vehicles has improved considerably in the two- and three-wheeler segments, says Roychowdhury. Average pricesof electric two-wheelers with combined incentives have reduced by 45.29 per cent;that of three-wheelers, by 31.14 per cent. Says Roychowdhury: “Personal cars do not get any incentive. If cars are put to commercial use, then the combined incentives can reduce the price by 22.16 per cent. Our study shows that it will take longer for cars and buses to achieve price parity.” 

Comparatively more diverse models are now available in the two-wheeler segment than in cars. Approximately 32 electric two-wheeler models and 65 variants are available in the market today -- the car segment has only five models and 24 variants. 

Need ZEV mandate for vehicle manufacturers to speed up change: As is the global good practice, it is necessary to set a target for vehicle manufacturers to produce and sell a percentage of their annual production as EVs and increase it in a phased manner. This can provide a roadmap to plan investmentsand innovate to diversify the product range, as well as push down prices. A sales requirement puts downward price pressure on electric vehicles, as they would be forced to compete to be compliant with the sales requirement. On the other hand, purchase requirements force consumers to compete for a limited number of products that increase prices. Industry can also have tradeable credits to meet the target flexibly. 

Vehicle manufacturersor original equipment manufacturers (OEMs) positive about the growth prospects, but response varies across vehicle segments: The consultation with the vehicle OEMsshows that a majority of two- and three-wheeler OEMs expect 40 per cent growth per annum over the next five years. The OEMs who produce only e-twowheelers expect even higher growth. They attribute this to improved price parity and lower total cost of ownership. 

Car manufacturers expectnot more than 5 per cent per annum over the next five years. Less than 10 per cent believe that close to 10 per cent EV penetration is possible. They do not expect price parity in the short run. Low consumer demand is attributed to high upfront cost, inadequate public charging, low battery range, low level of innovation, and limited number of models. 

E-bus OEMs see a likely growth of up to 20-30 per cent over the next five years -- but they will require continued support and inclusion of private bus operators as their consumer base. Bus OEMs are directly linking this growth to subsidy and readiness of state transport undertakings for this transition. 

OEMsprefer a lower bound ZEV mandate that can be implemented in a phased manner from 2025 to 2030: The consultation quizzed OEMs about the starting point of the ZEV mandate. While there is support for this strategy, the different segments have responded differently. Two-three wheeler manufacturers are more supportive of the ZEV mandate, while four-wheeler and bus manufacturers are more conditional in their support. They would prefer to begin at the level they are selling today, and ramp it up as the market picks up. Therefore, the preferred mandate differs for different segments beginning at 2 per cent for two-wheelers, 5 per cent for three-wheelers, and 1 per cent for cars and buses. In 2030, this is expected to end at 25 per cent for two-wheelers, 50 per cent for three-wheelers, 5 per cent for cars and 15 per cent for buses. 

Vehicle manufacturerslook for continued support to counter key barriers to EV penetration: Theindustry has identified several barriers, ranging from high up-front costs, public hesitancy in adoption and lack of options, to lack of public charging infrastructure and low battery range. For four-wheeler OEMs, high up-front cost, lack of public acceptance and a lack of public charging infrastructure are the top concerns. For two-wheelers, high charging time and low battery range are the issues. For bus OEMs, high up-front costs, low battery range and high charging time are among the biggest concerns. 

Buses have additional problems as state transport corporations feel that functional requirements of buses in terms of distances, route characteristics etc are different in cities; therefore, the product range has to be diversified to meet these requirements. Moreover, there are other concerns as well, such as battery replacement in buses, high costs, lack of trained humanpower, and uncertain battery efficiency. Most manufacturers have shown an interest ina business model that provides a complete package of products and services that includes vehicle, charging infrastructureand service costs. They are looking at the vehicles as a service. 

ZEV mandate will require a credit trading mechanism to provide more flexibility and revenue: Simply put, manufacturers can earn credit from ZEV sales.Those who over-achieve their target can trade their credits with the laggards. This credit trading mechanism provides an incentive to manufacturers to build EVs, win ZEV and emission credits, and get a fresh revenue stream from banking and trading of credits. In fact, the National Automotive Policy of 2018 had recommended banking and trading of CO2 credits by vehicle manufacturers. This offers flexibility to manufacturers and avoid penalties for non-compliance. CO2 credits or debits per manufacturer will be available to facilitate the trading of credits. Agencies like Bureau of Energy Efficiency (BEE) are expected to develop a carbon credit system as a compliance mechanism for fuel economy regulations. Designing the credit programme will be critical for effective implementation. 

Incentive for electrification under the current fuel economy regulations need to be stronger: Already, the current fuel economy norms for passenger cars allow super-credits or extra points for predefined technology solutions and sale of hybrids and electric vehicles to meet the fleet-wide fuel consumption norms. But some of the technology approaches that are allowed to qualify for earning points are very ineffectual. For instance, six-speed transmission (that normally all luxury cars use)and tyre pressure monitoring depend on a driver’s behaviour (and not on technological innovations). These have weakened the targets that need to be phased out.More points need to be given for EVs to help the OEMs meet the fleet average fuel economy norms. Otherwise, the current standards can be easily met with small and incremental improvements in ICE vehicles, with very little electrification. As seen in Europe, stringent fuel economy or carbon dioxide reduction targets have speeded up electrification. 

Globally, ZEV mandate is being adopted to fast-track change and diversify markets: There is enough global evidence to validate the mandate-based regulation as an effective accelerator. California, China and Europe have adopted varying approaches to create opportunities for a mandate for the industry. California has taken the lead to adopt ZEV mandate that is now followed by 14 other states in the US. This is supported by ZEV percentage credit requirement in which credits are awarded based on ZEV sales that can be traded. Non-compliance leads to financial penalties. California’s market share is more than four times the American average. It has more ZEV models than the rest of the US. 

China’s New-Energy Vehicle (NEV) mandate policy for passenger cars (electric and hybrid) requiresmanufacturers to meet credit-based requirements. Excess credits earned under the NEV mandate can offset deficits in their fuel economy compliance. Non-compliance can lead to penalty. 

In the European Union (EU), instead of a mandate for ZEVs, the manufacturers have the option of meeting voluntary ZEV quotas and claim compliance offsets against the post-2021 corporate average standards. Manufacturers that exceed these voluntary targets can receive specified levels of relaxation on their standards.Vehicles with zero total emissions get full credit. EU has also made its CO2 standards so stringent that it requires more aggressive electrification to be compliant. 

Japan isworking towards a carbon offset market for net zero emissions -- to sell certain percentages of EVs within the product mix. Companies failing to meet the thresholds can buy GHG emissions credits from compliant industry peers. 

The way forward

As zero emissions transition is inevitable for low carbon and clean air action,a clear mandate-based roadmap for production and sales of EVs is necessary for longer term policy visibility and to bring more certainty in investments and markets.The importance of a mandate has also been demonstrated in Delhi’s CNG programme that could find a foothold only because of a mandate. ZEV transition will also require this strategy.

  • Implement ZEV mandate-based regulations in phased manner from 2025 to 2030 with supportive policies. There is varying degree of support from the industry for this strategy – industry participation is needed to take this forward.
  • Adoptsupportive policies of ZEV credit trading mechanism and regulations. Modalities and rules of trading, system of banking, trade and transfer, penalty system etcneed to be detailed out.
  • Tightenfuel economy targets for different vehicle segments to accelerate electrification by creating moreincentiveswith super-creditsand multipliers and preferential emissions accounting for ZEVs.
  • Continue to reform and strengthen other ZEV schemes including demand and purchase incentives, support for charging infrastructure, and battery ecosystems. 

For more information, interviews etc, contact Sukanya Nair of The CSE Media Resource Centre at, 8816818864.