Striking the right balance between political support for electric vehicles and hybrid vehicles

As the Indian auto industry tries to come to life after the onslaught of the protracted economic downturn, Covid-19 and the current chip shortage, another obstacle stands in its way. The government’s support for electric vehicles (EVs) is vastly different from what it gives for hybrid electric vehicles (HEVs) and this has left the industry divided. While the Center supports electric vehicles, it treats hybrid electric vehicles to the same level as internal combustion engine (ICE) vehicles. Electric vehicles are considered superior to ICE vehicles in lower emissions, running costs, total cost of ownership and superior performance.

In terms of measures, the Indian government has made clear its support for electric vehicles through central and national policies on electric vehicles. diagrams I and II. Support is also extended to charging infrastructure, an integral part of building an EV ecosystem. By purchasing electric cars and buses, encouraging the industry through interactions, facilitation, reporting and offering production-related incentives for the manufacture of electric vehicles and ACC batteries, the government is doing its part to promote promotion and production of electric vehicles in India.

While the future of electric vehicles looks very bright, it will take some time for them to become mainstream. At present, it occupies less than 1% of total vehicle sales in India, compared to 2-3% globally. According to Lux Research, the inflection point when electric vehicle sales overtake ICE vehicle sales will likely arrive between 2035 and 2040. It will also depend on how politics, technology and customer preferences play out, but even on the basis of the most optimistic assumptions, it is still in a decade.

Challenges

The development of a supply chain for electric vehicle parts and batteries and the establishment of infrastructure and charging technology would be some of the challenges. Another thing that needs to be looked at is the capabilities of original equipment manufacturers (OEMs) to build electric vehicles. Next is the availability of green electricity – from solar and other renewable sources – and the development of a maintenance, upkeep and recycling ecosystem. There are also concerns related to the management of rapidly changing technology.

There is a lot of interest in the Indian auto industry. All the major manufacturers of vehicles and vehicle parts and even new entrants have plans and investments ready for electric vehicles. However, in the first eight months of the 2021-2022 fiscal year, just under 10% of the FAME II scheme allocation was used up.

When we talk about hybrid vehicles, they depend on both ICE and electricity. Typically, they offer better fuel efficiency and lower emissions compared to their ICE counterparts, but they are also more expensive to produce. Hybrid vehicles, which have been around for more than 15 years, come in many shapes and forms: Plug-in hybrids charge their batteries using grid electricity and use the motor as a support compared to self-charging hybrids which use motors for charge their batteries. While mild hybrids use their electric motors to support the engine, full hybrids can travel short distances on electric power alone.

Globally, manufacturers like Toyota, Hyundai, Honda, Kia, BMW, Ford, General Motors and so on have hybrid vehicles in their portfolio. By 2021, it is estimated that around 5.5 million hybrids will be sold worldwide, including 2 million plug-in hybrids. Electric vehicle sales are estimated at 4.4 million. In India, the number of hybrid vehicles sold in fiscal year 2020-21 was only 564.

To analyze this anomaly, let’s look at a car like the 2021 Toyota Camry. In the United States, the Camry Hybrid sells for around $ 27,800 and is only 4% more expensive than the gasoline Camry. The Camry Hybrid gives around 20 km / liter, which is 44% more efficient compared to the 14 km / liter of the gasoline version. The Camry Hybrid emits 125 g / km of CO2 compared to 215 g / km of CO2 of its gasoline counterpart. This makes the hybrid version more popular in most regional US markets. In India, the Camry Hybrid sells for Rs 41.2 lakhs while its closest petrol competitor, the Hyundai Sonata, sells for Rs 21 lakhs. This kind of premium is simply not sustainable. In India the tax rate for hybrid vehicles is the same as for ICE vehicles and as in the example the hybrid ends up attracting Rs 1.7 lakh more than its gasoline counterpart.

Go forward

In most countries where hybrid vehicles are popular, they enjoy a lower tax rate than their gasoline / diesel counterparts. Electric vehicles are taxed even less and are also supported by higher subsidies.

There are certain factors that need to be taken into account when designing political support for hybrid vehicles. They significantly reduce fuel consumption and emissions compared to their ICE counterparts. While EVs are the future, it will take some time, and hybrids may be the middle way. Electric vehicles and hybrid vehicles also have many technologies in common. Support for hybrids must take into account the fact that electric vehicles are likely to win out over hybrid vehicles in the long term. A simple adjustment in taxes so as not to discourage hybrid vehicles may be enough. The types of hybrid vehicles also need to be technically defined while taking into account the merit of political support.

While the Indian government and the auto industry have rightly taken action in favor of electric vehicles, the argument for a review of the taxation of hybrid vehicles deserves analysis and debate.

(The author is the Managing Director of Primus Partners)

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