Electric run for price parity

Can the cost of EVS match that of conventional fuel-powered vehicles in a year? The road is long yet

At a recent media event, Road Transport and Highways Minister Nitin Gadkari said the price of an electric vehicle (EV) would match that of an internal combustion engine (ICE) -based vehicle within a year’s time.

EVS are currently far more expensive than conventional fuel vehicles owing to battery costs that make for 35 to 40 per cent of their price. While an electric car costs almost twice of petrol or diesel models, e-buses cost nearly 1.5x to 2x more than their diesel counterparts, depending on the length, number of seats and other specifications.

For instance, the electric version of the Tata Tigor costs ~11.99 lakh (ex-showroom), while the price of its entry level gasolinepowered variant is ~5.98 lakh.

“I am trying... within one year, the cost of electric vehicles will be equivalent to the cost of petrol vehicles in the country and we will save money spent on fossil fuels,” Gadkari said at the event, without specifying which particular segment he was talking about.

While hefty subsidies by central and state governments have accelerated EV volumes, so far only the electric two- and threewheeler segments can claim to have achieved price parity with their fuel-powered counterparts. For example, the price of the compressed natural gas (Cng)powered Bajaj RE (passenger carrier or auto-rickshaw) is ~2.27 lakh, while the comparable electric Mahindra Treo costs ~2.88 lakh to ~2.98 lakh. Electric busmakers and e-carmakers have quite some distance to travel to achieve such price parity.

Industry experts and manufacturers point out bridging the price gap in such a short span of time is tough. One reason they give is that while Ev-makers have been battling inflationary trends for a few months now, the recent depreciation of the Indian rupee against international currencies has further jacked up the overall costs for this import-reliant industry.

The rupee on Friday slipped 1 paisa to close at its all-time low of 78.33 (provisional) against the US dollar. To be sure, the Evmakers — be it two-wheeler or car companies — are already burning cash and, hence, cannot afford to bring prices down. That said, despite the cost pressure, instances of Ev-makers passing on the increase in manufacturing cost to consumers are few.

Within two-wheelers too, except for low-speed scooters, most are 1.3 to 1.6 times the price of an ICE, says Sohinder Gill, director general, Society of Manufacturers of Electric Vehicles. A similar price gap exists in other segments. Material costs, especially chips and batteries, have been constantly increasing for the last few months and there are no signs of a reduction happening anytime soon, Gill points out.

“Despite the pressures, most of the manufacturers would try to absorb at least some part of the cost increase rather than pass it on to the customers,” he says. “As of now, everyone is trying to increase the adoption of EVS. A major hike may further widen the price gap between EVS and ICE vehicles that may impair the growth of electric vehicles,” he says.

Harshvardhan Sharma, head of automotive retail consulting practice at Nomura Research Institute, says although in light commercial and small commercial vehicle segments, the total cost of ownership (TCO) parity exists even today, the same cannot be said for passenger vehicles in the personal segment.

“It may take up to five years for true parity (without government subsidy) to arrive between EVS and ICES,” he says, citing an import-dependent supply chain and an underdeveloped base of indigenous suppliers as the key reasons.

It would take some time for the unit economics to kick in given the nascent market and the relatively small volumes, he adds.

Therefore, despite subsidies, it may take longer for automakers to break even since economy of scale is the key for capexheavy car platform development programmes, says Sharma.

Led by e-two-wheelers, India’s EV sales increased threefold to a total of 429,217 units in FY22 compared to 134,821 units from the year-ago period, according to the Federation of Automobile Dealer Association (FADA). While the overall numbers are encouraging, they still account for low penetration.

Sample this: a total of 57,976 EVS were registered as of June 26, according to the Ministry of Road Transport & Highways’ Vahan dashboard. This is 4.5 per cent of the total automobiles registered. Given that Vahan doesn’t capture data of lowspeed EVS that do not require registration, the overall numbers could be marginally higher.

Others also emphasise the significance of volumes in driving down costs. In case of cars meant for personal buyers, the price parity between the ICE and EVS will be driven by scale and localisation, says Pawan Goenka, former managing director and CEO, Mahindra and Mahindra, and chairperson, SCALE (Steering Committee for Advancing Local value add and Exports), Government of India.

“I believe a 10-15 per cent price premium over ICE vehicles will be the sweet spot and in my opinion, it is doable once we get the scale and localisation,” says Goenka. Getting EVS to make for a fifth of the personal vehicle market by 2030 is very much doable, he believes.

The expected drop in battery prices, maturing of the EV technology and higher localisation coupled with competitive pricing will bridge the price gap between EVS and ICE SUVS.

Crisil estimates battery prices to decline by 6 to 8 per cent annually from the current $200220 kw/hour. However, given that batteries account for some 40 per cent of an EV’S cost, electric vehicles will still see higher ownership costs due to an overall inflationary trend, explains Hemal Thakkar, director, Crisil Research.

The domestic EV market is likely to cross 10 million in vehicle sales by 2030, with an overall adoption rate of more than 30 per cent across different vehicle categories, consulting firm Arthur D Little (ADL) said in a recent report. Currently, India is ranked 11th among 15 countries in terms of market readiness for EV adoption, according to ADL’S Global Electric Mobility Readiness Index (GEMRIX). Norway is the world’s EV adoption leader.