BRIDGING THE GAP

Why the surge of hybrid cars is being seen as an essential transition phase to electric

Just over a year ago, the march of electric cars around the world seemed unstoppable. Sales were on an upswing and the general expectation was that they would soon dominate the passenger vehicle industry, supplanting internal combustion engines (ICE).

How things have changed.

In 2023, electric car sales slowed down and hybrid cars threatened to steal electric’s thunder.

According to S&P Global, the penetration of all categories of hybrids has gone up from 9 per cent globally to 11 per cent in 2023 and is neck-andneck with electric cars, though the latter are marginally ahead at 12 per cent, compared to 10 per cent in 2022.

In the United States, hybrid sales in 2023 were 1.4 million and overtook electric cars, which sold 1.2 million. Globally, sales of plug-in hybrids grew faster, going up by 43 per cent in 2023, compared to a 28 per cent increase for electric cars.

Plug-in hybrids have two engines and the electric part has a much larger battery than in the regular hybrids. As the name suggests, plug-in hybrids require to be plugged into an electric socket to charge their battery. A regular hybrid gets its battery (smaller than in plug-ins) charged by the gasoline engine – the two complement each other -- and regenerative braking.

Plug-in hybrids in China grew by 85 per cent in 2023, while electric vehicles grew by 70 per cent. In India, the popular hybrids, such as Toyota Hyryder and Maruti Suzuki’s Grand Vitara, do not require to be plugged in.

The global trend towards hybrids is now visible in India, where they are being seen as an essential bridge to EV land.

"India will take a long time for 100 per cent electric cars. However, to reduce carbon emission, we have to go in the interim for an alternative, which complements electric cars and that is hybrids, which will replace ICE cars,” Maruti Suzuki Chairman R C Bhargava, a vocal advocate of hybrid cars, said in an earnings call a few days ago.

Going by the trend, the government’s earlier target to have a 30 per cent penetration of electric cars by 2030 looks like a tall order. New estimates put the penetration from as low as 15 per cent to 23 per cent. That is why car companies, led by the Japanese, are pushing the Indian government to look at hybrids in the interim if it wants to reduce carbon emission.

Bridge to EV

Bhargava said in the earnings call that Maruti was working on technology with which hybrid models will give more mileage than their existing ones, which are based on Toyota technology. And they will also be available in the smaller, cheaper cars.

Last year, according to S&P Mobility, hybrids were 1.75 per cent of all passenger vehicle sales in India, while pureplay battery-operated electric cars were 2 per cent. However, in the first three months of this year, hybrid sales have surpassed electric.

“In India, during the transition period to EVS, hybrids serve as an ideal solution, anticipated to maintain their relevance for almost a decade before electric vehicles begin to dominate. This is partly due to India’s inherent advantages for EV adoption,” says Puneet Gupta, Director, S&P Global.

S&P global estimates that pureplay battery electric vehicles in India will increase their penetration to 23 per cent by 2030. By that time, hybrids would go up to 9 per cent — to 11 per cent if small hybrid cars come in, as Bhargava promises, with a lower price tag.

The global market for electric passenger vehicles is concentrated in three areas: China, US, and Europe, which accounted for 95 per cent of global electric sales last year. China alone was 60 per cent. In contrast, India’s electric car market share is 2 per cent.

Of course, electric is ideal, especially if more and more of the charging is done through renewable energy, but its adoption is stymied. Lack of enough charging stations on roads or in housing complexes across the country, combined with range anxiety, deter consumers.

India's new Electronic Mobility Promotion Scheme, which provides subsidies for electric vehicles, does not support electric cars, only electric twoand three-wheelers. Building small, affordable electric cars, which have the potential to sell in large volumes, is still a technological challenge.

Taxing matter

Electric cars attract a goods and services tax (GST) rate of 5 per cent.

Hybrid cars attract 28 per cent GST, but the cess takes the total tax incidence to 43 per cent, unless it is a small car. ICE cars attract the same GST, but the cess takes the total to up to 50 per cent, varying according to the size of the body and engine.

This could change. Roads and highways minister Nitin Gadkari has proposed to the finance ministry that the GST on hybrid cars be reduced to 5 per cent. This, if approved by the GST Council, will push up hybrid penetration manifolds, according to S&P Mobility. Bhargava agrees that this would lead to a big bump-up in hybrid sales.

However, the proposal worries global companies that are looking to introduce plug-in hybrids in India. They say light hybrids, which have a smaller lithium battery, are just ICE vehicles providing better mileage, as the bulk of the driving is still on gasoline.

Questioning electric

There are critics, global and Indian, who doubt whether electric cars would help in reducing carbon emissions significantly in the near term. Maruti Suzuki has said that charging stations in India, powered by energy from coal, not renewable sources, will only generate additional carbon emissions, neutralizing the impact of electric cars. So, the focus should be on changing that.

A study by Goehring & Rozencwajg, a natural resource investor, says despite the noise on Norway’s successful model for electrification of cars, the country forks out $4 billion on electric vehicle subsidies annually, as much as it does for building highways and maintaining public infrastructure, which has a big financial impact.

Goehring & Rozencwajg also points out that despite all the action on the electric front in Norway — 20 per cent of all vehicles on the country’s roads and 80 per cent of new vehicles are electric — gasoline demand has gone down by only 4 per cent. That is because Norwegians are reluctant to give up their ICE cars even after they have bought an electric.

Two-thirds of car owners in Norway have at least one ICE vehicle, and they continue to use it.

Some political groups say electric cars are elitist and favour high-income families. That may be debatable, but the role of hybrids as a bridge to electric may be less so.

The global market for electric passenger vehicles is concentrated in three areas: China, the US, and Europe, which accounted for 95 per cent of global electric sales last year