<![CDATA[In India, Modi is betting big on electric vehicles. But does he need China's help?]>

July was the Indian auto industry's worst month for passenger-vehicle sales in almost two decades, with numbers plummeting 35 per cent from the corresponding month last year. But the same month also saw top carmakers such as Maruti Suzuki, Tata Motors and Mahindra announce their plans for new models, with one thing in common " they were all plans for electric vehicles (EVs).

EVs account for just 0.1 per cent of India's car market, according to figures released by manufacturers. Mahindra leads the sector by a wide margin, with some estimates putting its market share at more than 50 per cent, and has been in the business for close to a decade " but few of its own shareholders are aware of the company's involvement in EV manufacturing. It is an oversight Prime Minister Narendra Modi wants to correct.

The industry's move to shift gears from conventional internal combustion engines to EVs follows a similar thrust from the government, which over the years has set out a blend of "carrot and stick" policies to achieve its ambitious target of becoming a 100 per cent EV nation by 2030. These include aiming for all three-wheelers manufactured in India to be EVs by 2023, while all two-wheelers with an engine capacity of below 150cc must be electric by 2025.

The government's plan also seeks to curb rising air pollution and mitigate India's dependence on imported crude. The energy-hungry country is the world's No 4 car market by sales, and is home to some of the most polluted cities in the world.

Carmaker Mahindra leads the Indian electric-vehicle sector by a wide margin. Photo: Shutterstock alt=Carmaker Mahindra leads the Indian electric-vehicle sector by a wide margin. Photo: Shutterstock

India's first major EV push came in 2010 when the Ministry of New and Renewable Energy unveiled incentives for manufacturers, but this was accelerated by the Modi administration in 2015 when it earmarked 10 billion rupees (US$140 million) for infrastructure development, incentives, research and pilot projects over the next two years.

The second phase of the scheme " known as "faster adoption and manufacturing of electric vehicles" " was originally unveiled in 2015, and received funding of 100 billion rupees in February.

Last month's budget brought with it more goodies for the sector, with a reduction in the federal sales tax on EVs from 12 per cent to 5 per cent, and on electric car chargers from 18 per cent to 5 per cent. Consumers who purchase EVs will also be given tax exemptions, and the import duty on lithium-ion cells was removed.

"Our objective is to clean up cities, reduce imports, and utilise the sun and its energy for driving EVs," said Amitabh Kant, chief executive of the government's policy think tank Niti Aayog and a confidant of Modi.

"From the perspective of energy security and competitive advantage, new mobility solutions will reduce oil import costs, lower India's trade deficit and limit our vulnerability to oil supply disruptions," Kant told a conference on sustainable mobility last month.

The country's famed automobile sector is the engine of the economy, contributing close to half of the GDP's manufacturing component " which in turn makes up around 15 per cent of India's economy. The Modi administration's continued push for eco-friendly vehicles has sent jitters through the car industry, which has voiced concerns over the ambitious time frame for the transition while pointing out a lack of infrastructure and ecosystem for EVs.

This response forced the government to soften its stance and clarify that its policies would allow internal combustion engine vehicles and EVs to coexist and grow.

Nonetheless, industry experts say the widespread adoption of EVs in the Indian market is still distant, and the government is rolling out reforms at a pace which cannot be backed by the current ecosystem comprising EV manufacturers, start-ups, infrastructure and resources.

For example, the Modi administration's abrupt mandate in March that EV manufacturers should produce half of their components locally to benefit from subsidies proved a blow to these firms, bringing down overall EV sales from 12,000 that month to just 300 in April, according to Alok Ray, assistant director of the Society of Manufacturers of Electric Vehicles.

"An industry which is not even 1 per cent of market share cannot possibly replace the sector 100 per cent within three years," Ray told This Week in Asia. "What we need are more subsidies, robust financing models for consumers, a clearer road map like setting up charging centres and unambiguous regulations to streamline the commercial usage of vehicles."

The Modi administration reportedly plans to target India's 10 most-polluted cities " including Gurugram, Delhi and Bangalore " which collectively are responsible for more than 30 per cent of its vehicle population, to implement its initiatives.

"I will not say it is sustainable in terms of short-term goals " it is more of a vision from the government's side. Even the major auto players are not wholeheartedly supporting [the government's initiatives] and consumers are not fully ready to embrace EVs," said Puneet Gupta, associate director of South Asia automotive sales forecast and advisory at market research firm IHS Markit.

"Most of the auto giants are still keeping EVs as a backup option as the industry is still nascent and they do not know how it will shape up regarding policies and investments."

China has pumped nearly US$60 billion into its electric vehicle industry over the past decade. Photo: Xinhua alt=China has pumped nearly US$60 billion into its electric vehicle industry over the past decade. Photo: Xinhua

Beyond the challenges at home, Modi faces another uphill task if he wants to press ahead with his EV dream. Revamping India's domestic car industry means relying on Beijing's blessings, as China is the dominant player when it comes to the supply of key components required for building EVs.

The country " which has pumped nearly US$60 billion into its domestic electric vehicle industry over the past decade " controls between 50 per cent and 77 per cent of the global supply of raw materials for EVs, according to Yano Research Institute. China sold more than a million EVs last year, a total higher than all other countries combined, and is home to 99 per cent of the world's 250 million electric scooters.

"We just need to look at the most critical part of an EV " the battery, which makes up about 40 per cent to 55 per cent of the total vehicle cost. China is setting out to become a global EV battery hub," said Sri Harsha Bavirisetty, chief operating officer of Hyderabad-based start-up Gayam Motor Works, which produces electric bicycles, three-wheelers and supply vehicles.

"It is very important for the government to take the necessary steps to promote indigenous manufacturing of lithium ion cells for EV batteries. India should use the next 10 years to become a leader in next-generation battery technology," Bavirisetty said.

Beijing controls the vast majority of the global supply of lithium and cobalt " two vital components for EV batteries " through mines in Congo, Chile, Bolivia and Australia, leaving private players like Tesla and other nations far behind.

Amid a challenging political climate between India and China, the New Delhi administration will certainly find it hard to propel its EV mobility to the next level without involving China.

Alongside the lingering border issues between the two countries, China's vociferous anti-India stance on New Delhi's decision to revoke the special status of Jammu & Kashmir, as well as the ballooning trade deficit in favour of Beijing, could also play a role in bilateral matters. Experts are still keeping an eye on whether and how this will directly influence India's reliance on China for EV components.

In the meantime, some are pinning their hopes on breakthroughs in battery technology, which would eventually help power future EVs.

This article originally appeared on the South China Morning Post (SCMP).

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