India has made a concerted effort to advance electric mobility. The country's electric vehicle transition is gaining momentum as a result of increased demand, state-level EV policies, and domestic manufacturing. Simultaneously, India's electric mobility market is expanding, facilitated by policy, compelling and improving economics, and the emergence of new business models and investment opportunities.
Significant amounts of venture capital have been invested in the ecosystem. Between 2015 and 2020, Indian EV start-ups raised INR4,490 crore (USD601 million), demonstrating the viability of EV business models. It has remained stagnant due to industry-wide barriers; let's take a closer look to understand why.
The investment required to finance India's mobility transition is enormous, and mobilizing capital to finance OEMs, battery manufacturers, charging stations, and end-users will require targeted and systemic policy support, as well as changes in market design, business models, and financial structuring.
To significantly boost EV adoption and manufacturing, the entire automotive value chain will need to continue making sizable investments in research and development, capacity building, and the development of an ecosystem that addresses range anxiety and charging infrastructure.
Vehicle manufacturers will eventually need to develop EV-specific platforms for mass production in order to achieve economies of scale. The platform and subsequent vehicle development exercise have a high fixed cost component. It typically takes between two and five years to develop, depending on the type of vehicle and the manufacturer's capabilities and plans. Thus, in order for a manufacturer to capitalize on the enormous opportunity that EVs present, they will need to make significant investments over a lengthy gestation period.
Policy support and innovative business models are required to accelerate EV adoption, particularly for players with a long gestation period, such as charging station providers. These players will have to wait even longer before they begin to earn money. They will have to wait until after the gestation period of infrastructure development and the lag period of increased EV penetration, resulting in equitable charging network utilization.
When the investment required for India's mobility transition is considered, it becomes clear that transitioning to an e-mobility future will be a massive undertaking costing hundreds of billions of dollars.
To raise this amount of capital to finance OEMs, battery manufacturers, charging stations, and end-users, systemic policy support and changes in market design, business models, and financial structuring will be required. Together, these will need to address the barriers to sector growth and nudge capital into the sector.
For India's long-term and short-term mobility transition goals to be met, well-considered interventions are needed in both time and money. Compared to INR 10,500 crore (USD 1.5 billion) in 2018, investments in the electric vehicle (EV) ecosystem grew at an exponential rate, reaching up to INR 26,600 crore (USD 3.8 billion) in 2020.
In spite of the fact that India is becoming an increasingly attractive investment destination for electric vehicles (EVs), obstacles such as small market size (due to the high initial cost of these vehicles), poor cost economics in the charging infrastructure business, fragmented and small markets, the reduced lending capacity of financial institutions following the COVID-19 era, and a lack of clear policy mandates may limit the amount of capital flowing into the industry (Deloitte 2020).
It will take a variety of long- and short-term interventions to address these barriers to the flow of capital, both at the federal and state levels.
Transitioning to an electric mobility future has numerous benefits for India, not only for environmental sustainability but also for economic development, as it can generate jobs, reduce oil import bills, boost renewable energy, and result in a reduction in point source vehicular emissions.
For India, the transition to e-mobility is a complicated issue marked by stakeholder diversity and interconnection with other social and policy issues of the day. The problem's complexity and multiple impediments, such as the high upfront cost of EVs, insufficient charging infrastructure, fragmented markets, and limited access to capital, may slow India's transition to sustainable mobility.
Existing business and financial models lack the scale and characteristics necessary to attract the massive amount of private capital required to complete the mobility transition.
At the moment, national and state policies encouraging EV adoption may not be sufficient to close the gap between massive EV targets and actual EV sales. It is also worth noting that concepts such as 'green windows' can help focus attention on emerging clean energy markets such as hybrid, storage, e-mobility, and distributed renewable energy, as well as increase their access to finance by mitigating and diversifying risks.
While such catalytic finance measures are undoubtedly necessary to focus attention on these markets, a comprehensive set of solutions for all stakeholders in the e-mobility ecosystem is also required. These solutions will need to be cross-policy, cross-regulatory, and cross-financial.