Nitin Gadkari’s Electric Dream – A Nightmare for Auto Companies
Gadkari’s ultimatum to carmakers to turn to electric or alternate fuels or be ‘bulldozed’ is filled with challenges.
“I am going to do this whether you like it or not. And I am not going to ask you, I will bulldoze you,”Nitin Gadkari, Union Road Transport Minister
Union minister for road transport Nitin Gadkari virtually commanded all automakers to ditch petrol and diesel cars and switch to making electric cars or search for alternative fuels at the SIAM convention this week.
The Indian government only wants electric cars to be sold from 2030, which is just a little over 12 years away. That, automakers argue, is too short a time span to make a complete shift away from petrol and diesel vehicles to electric vehicles.
Challenges of Going Electric by 2030
The auto industry is just not ready. While Gadkari argues that automakers are pushing out too many vehicles right now and wants growth to slow down in the auto sector, but switching to manufacturing electric cars at the same time is not going to be easy.
First, there is the high-cost of lithium-ion batteries, even though costs have been falling. In 2010, the cost of Li-ion batteries was well over $1,000 per kWh, according to McKinsey.
In the beginning of 2017, battery costs had dropped to $227 per kWh. By 2030, McKinsey forecasts that prices would drop to about $100 per kWh, which is when electric vehicle production costs will become somewhat comparable to those with internal combustion engines.
For example, a Mahindra e2O priced at Rs 7.5 lakh to Rs 11.2 lakh has a 10 kWh battery pack on the base model. A replacement battery pack costs Rs 2.5 lakh (to be changed once in 4-5 years).
Second, there is a development life cycle that every product has. In the auto industry, it takes about five years from the drawing board to a finished product.
If the industry has to go electric by 2030, and if car companies get going in earnest now, the earliest that electric cars will begin to hit the market would be in 2022.
Third, what happens to auto component manufacturers? There are component makers who have made large investments in components for internal combustion engine cars – pistons, crankshafts, connecting rods, flywheels, valves, injectors etc.
Electric cars use far less moving parts in their motors. Auto ancillary companies will have to re-tool and rework their entire business to cater to electric cars. This will take a few years to stabilise.
Fourth, even if electric car production kicks off – and let’s assume there are no anxieties around range and charging times – a suitable charging network (with enough power supply) will need to be set up around the country. The government claims it is working on a plan that is in the final stages, but will this be ready to support electric vehicles in the next 3-5 years?
Fifth, the government has put a plan in place for all petrol and diesel cars to move from BS-IV emission norms to BS-VI norms by 2020, completely skipping BS-V norms. This means that many automakers today have already invested or are investing in new engine technologies to meet the 2020 deadline. If you tell them, they have only 10 years to recover that investment – as they won’t be able to sell petrol or diesel cars after 2030 – and this may not encourage the industry.
What About Car Buyers?
Car buyers will also face a dilemma. With the 2030 deadline in place to go all electric, does it make sense buying a new car so close to the deadline? What happens to someone who buys a car in 2028 or 2029?
Will he or she be able to resell the car for a half-decent price? Demand for internal combustion engine cars will taper off, further putting pressure on automakers dependent on that revenue to invest in electric cars.
And then there is the question of charging times and commute times – at present it takes 5 hours to charge an electric car that can go about 100 km on a charge, while it takes 5 minutes to fill the tank of a petrol car that can do about 500 km on a single tankful.
With this uncertain business climate, it won’t be surprising if a few more car companies go the General Motors way in India – choosing to manufacture in the country, but sell in foreign markets only.
Then there is the question of petrol pump associations and the oil industry. While dependence on fossil fuel for power generation will likely continue, petrol stations may have to revamp their business or shut shop.
By 2025, most buyers are likely to be looking at electric cars only, but will the industry be ready to cater to that? Currently, it seems like a distant dream – Gadkari’s dream, automakers’ nightmare.
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