According to a report by Bain & Company, the revenue pool for the electric vehicle (EV) value chain in India is projected to reach a size of $76–100 billion by the year 2030. This may potentially translate into a profit pool in the range of $8–11 billion.
The report noted that a number of variables have worked together to make significant EV adoption possible in more developed global automobile markets. Government backing, OEM investments, ecosystem development, relative vehicle cost competitiveness and performance, as well as customer acceptability, must come together to create a major inflection point in the transition from ICE to EV. Due to ongoing stakeholder investments and efforts, the Indian automotive sector has seen many of these variables come together over the past few years and is now well-positioned for significant EV growth, and India’s market is approaching an inflection point. The report has listed many factors contributing to the continuously increasing EV adoption in India. These factors are:
For consumers to adopt EVs and suppliers to support local manufacturing and ecosystem development, the central and state governments are providing substantial incentives. The following are some of the incentives mentioned in the report:
- Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) provides customer incentives for various vehicle types in addition to a Phased Manufacturing Plan (PMP) to support homegrown EV manufacturing and assembly. The capex gap vs. ICE for consumers has been greatly reduced thanks to $1.1 billion in demand-led incentives provided by FAME II in its most recent incarnation, encouraging adoption. An extra $200 million has been set aside for the installation and operation of the charging infrastructure.
- Rate cuts for the Goods and Services Tax (GST) and exemptions from the road tax, as well as state-level subsidies, direct investments in electrifying fleets, and the building of charging infrastructure.
- Production-linked incentive (PLI) programs for advanced chemistry cell battery storage were introduced by the central government to support domestic cell manufacture.
Improved cost competitiveness
EVs offer significant operating (fuel and maintenance) cost reductions over ICE vehicles, but the high purchase price has slowed adoption. The gap in capital costs for EVs in India has considerably decreased due to a sustained global fall in battery prices through 2021 (prices increased in 2022 due to inflationary pressures). When FAME and state incentives are considered, a high-speed 2W EV costs 15%–20% more than its ICE equivalent in Delhi. Even without material subsidies, EV capital costs will be competitive in the long run if battery prices continue to fall, even if at a slower rate, and if vehicles and parts are made more locally and on a larger scale.
Even at today’s prices, EVs’ total cost of ownership (TCO) is competitive. Leading 2W EVs offer a 40% lower TCO than equivalent ICE cars when driven over 40 km/day. While TCO competitiveness is lower for electric 4W vehicles, ride-hailing and fleets already see TCO advantages, and this is only improving.
OEM’s EV investments
Cross-segment OEMs are establishing an EV product portfolio for the Indian market and setting up the necessary environment (charging and dealership networks, financing) to serve the market, frequently through partnerships. In addition to ambitious EV aspirations from domestic automotive giants like TVS and Bajaj, we’ve seen the development of a whole host of new EV OEMs, like as Ather, Ola, Ampere, Okinawa, and Hero Electric. Most major passenger & commercial vehicles OEMs in India have introduced early market products and announced EV product launch slated for the next few years. Tata Motors and Mahindra are constructing EV portfolios for the Indian market, and Hyundai and Mercedes are bringing their worldwide EV platforms to India.
Emerging EV supply chains/ecosystems
Recent investments are developing an enabling ecosystem in India to foster mainstream adoption. This comprises localized production and battery assembly, battery management systems (BMS), software and telematics, and components. Emergence of charging infrastructure, mobility services, and platforms to satisfy customer needs.
EV readiness/awareness increased
A survey by CarDekho and Omnicom Media Group last year found that more Indians are interested in EVs. 66% of customers are willing to buy EVs, and 68% express environmental concern; they believe switching to EVs will lessen air pollution. Corporate customers, notably in e-commerce and logistics, set high targets for electrifying delivery fleets and decreasing their carbon footprint. Flipkart and Zomato have committed to 100% EVs by 2030.
These factors are driving EV adoption in India—EV sales have risen in the past year (although from a modest base) and are likely to continue. The report’s estimate indicates that 35%–40% of all vehicles sold in India by 2030 will be EVs, up from 2% in 2022. This means 14 million to 16 million new EVs every year.
$100 billion in revenue, $11 billion in profit by 2030
If the expected levels of penetration are reached, there will be a new revenue pool for EVs of $76 billion to $100 billion by 2030 (including some double counting in the value chain from the cost of batteries and other components), which could mean an $8 billion to $11 billion profit pool for participants.
4W passenger vehicles will be the most profitable (despite lower penetration and volumes), followed by 2W vehicles. These new EV income and profit pools will be distinct from today’s auto sector.
The authors of the report also believe that deep EV penetration in India by 2030 is a plausible possibility, but they also underline five important factors that must align:
- Short-term supply chain interruptions have led to recent price spikes in global battery prices. The Inflation Reduction Act (IRA) will likely impact global supply dynamics. To compete with ICE vehicles without subsidies in the long run, battery prices must fall by 20%-30%.
- OEMs must establish sustainable EV-specific business models for India. This includes establishing competitive EV platforms for the mass market, designing new channel structures with sustainable economics, and maintaining an EV partnership ecosystem.
- Early EVs had many safety incidents (e.g., battery fires). As the sector evolves, more localization, quality control and audits, and standardization will be needed to ease consumer worries.
- The government must sustain EV incentives and regulations. FAME II incentives will exceed their EV sales targets by 2024. After FAME II expires, the government may need to help consumers offset the cost difference between EVs and ICEs and stimulate local manufacturing and ecosystem growth.
- India’s charging infrastructure must increase to meet the expected number of EVs. Several businesses have made early investments and are dedicated to future expansion, but the economic model feasibility for charging point operations and OEM compatibility are unclear. India must create battery recycling and disposal solutions.
New/Emerging business models
According to the report, electrification will disrupt India’s automotive value chain, creating opportunities for investors and new players. Existing players will remain in these pools, but many new, uncontested spaces will appear in the coming years.
- Battery cell manufacturing, packaging, and BMS
- EV components
- Software and telematics
- New-age OEMs
- EV charging infrastructure
Many EV ecosystem participants are using multiple involvement strategies (develop, acquire, and partner) to create a bigger e-mobility ecosystem. Despite market volatility, early investors can reap significant rewards. India has witnessed $3.7 billion in PE/VC investments in this market over the past three years, and this sum is expected to rise as the business develops.