Slump in Sales: Impact of Covid-19 on the e-mobility segment

Impact of Covid-19 on the e-mobility segment

The outbreak of the Covid-19 pandemic, followed by the lockdown, has affected economic activity in the country. It has dampened consumer demand, especially for discretionary goods such as automobiles, impacted investment decisions and caused supply chain disruptions. This is also likely to impact the newly emerging electric vehicle (EV) segment in the country. India has set a target of selling at least 30 per cent EVs by 2030. To this end, the government launched the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME) scheme in April 2019, with an outlay of Rs 100 billion for three years. However, the e-mobility segment, which had started to gain steam prior to the Covid-19 pandemic, is now witnessing a deferment of investment from original equipment manufacturers (OEMs), disruption in the supply of crucial raw materials from China, and subdued demand from consumers.

Impact on OEMs and the supply chain

Following the breakout of the Covid-19 pandemic, OEMs are expected to defer new investments in the e-mobility segment. The pandemic happened at a time when the automobile industry was upgrading to Bharat Stage (BS) VI technology. In view of the muted automobile demand following the economic slowdown, OEMs are expected to primarily focus on reviving their current operations (petrol and diesel vehicles as well as the sale of BS VI vehicles), and not venture into new territories. Further, OEMs are likely to adopt cost-cutting measures, reduce spending on R&D and delay/defer EV plans. A case in point is Toyota, which has already deferred its plan to launch EVs in the Indian market.

Another impact of the pandemic has been disruptions in the supply chain and assembly of equipment. Despite achieving localisation to some extent, many Indian OEMs still rely on China for crucial raw materials used in battery packs and motors. Besides, a few companies in India import e-rickshaw kits from China and assemble them locally. Indian OEMs are facing disruptions in EV manufacturing owing to curbs on the import of Chinese components. In order to reduce their dependence on China for imports, Indian auto firms are expected to set up local manufacturing facilities. The decentralisation of the supply chain to source material from locations closer to the manufacturing units will also facilitate the growth of EV manufacturers. In a recent key development, the central government has announced a move to bar global procurement for tenders of up to Rs 2 billion. This is likely to provide a significant boost to small-scale domestic EV manufacturers, further supporting the localisation of the supply chain.

With regard to the financing scenario, due to the insufficient cash flow in the system, auto companies are expected to face a growing cash crunch and banks are likely to be wary of providing loans for EV manufacturing. In the pre-Covid era, major auto players had announced increased spending on the EV segment; however, the Covid pandemic is likely to impact the lending capability of financial institutions. Apart from this, there may also be a decline in venture capital funding in the EV and mobility start-up space. Fundraising for start-ups in this segment could get more challenging.

Demand for EVs

On the demand front, the lower disposable income and a cash saving tendency will lead to reduced demand for EV products, at least in the short term. On the other hand, post-lockdown, there is expected to be a decline in shared mobility as many people are likely to shift from public transport to private vehicles. This will create an opportunity for EV OEMs to promote affordable, zero-polluting electric two-wheelers, which earlier experienced low demand from private consumers. Low maintenance costs may further boost the demand for this segment. There could also be greater demand for second-hand two- and four-wheeler products, which are available at affordable price points. Besides, increased demand for EVs from the rental/subscription model may be possible.

Other areas of impact

Charging infrastructure: While the development of charging infrastructure has been affected, a few electric utilities have continued their studies on EV charging planning even during the lockdown period. Further, as the current investments in EV charging infrastructure in India generally do not factor in the short-term low utilisation rate of the infrastructure, it is expected that the companies will go ahead with their planned projects and programmes.

Policy environment: Another change expected to affect e-mobility in India is the reduced government focus on the EV sector and an increased focus on socio-economic development. Dedicated RrD in the e-mobility sector might also slow down post-Covid. As government revenue sources dry up, their procurement programmes for e-buses and e-cars will also take a considerable hit. Besides, many state EV policies and e-bus projects may be delayed due to other priorities and social distancing challenges.

Conclusion and the way forward

In order to support the EV segment in the country, one way is to provide liquidity to the auto industry, logistics providers, fleet aggregators, operators and auto dealers to ensure adequate working capital availability for salaries and other ongoing costs. Going forward, it is important to continue the FAME II scheme, introduce state-level EV incentives to complement the demand incentives under the scheme, restore confidence in public transport, and promote the adoption of e-buses. Besides this, Make in India should be promoted to increase the country’s share in R&D, design, manufacturing, and export of vehicles and components. Apart from this, relaxing localisation norms, and promoting local, resilient manufacturing and supply chains through tax incentives, lower land rent, and local battery manufacturing would be beneficial for the sector.

Net, net, Covid-19 is likely to have a serious impact on India’s e-mobility programme. Supply chain disruption, deferment of investment, and reduced government focus are expected to pose short-term challenges. Besides, the economic slowdown is likely to dampen automobile demand, especially for EVs. That said, the long-term outlook for EVs is more optimistic. In the long term, the Indian EV segment is expected to benefit from greater indigenisation of the supply chain, shift to private transport, focus on cleaner modes of transportation, increasing electrification of delivery fleets, and a fully developed charging infrastructure, among other things.

Priyanka Kwatra