In an upfront conversation, Team Arthur D. Little comprising of Dr Andreas Schlosser, Partner, Global Head of Automotive, Germany, Barnik Chitran Maitra, Managing Partner at Arthur D. Little India and South Asia, and Fabian Sempf, Principal Arthur D. Little India, Local Head of Automotive Practice speak to Ashish Bhatia on the global EV adoption rates, barriers and opportunities for suppliers in the ecosystem.
Dr Andreas Schlosser, Partner, Global Head of Automotive, Germany
Q. What was the scale of this massive exercise?
A. Arthur D. Little is fortunate enough to have offices with brilliant people all around the world. For GEMRIX, we involved two to three colleagues from each of the evaluated markets for the local research. Over two months, we collected roughly 1,000 specific data points that have been carefully validated and cross-checked as the quality of available data significantly varied between countries.
Q. Does it cover the supply and demand side extensively?
A. GEMRIX is designed to define the readiness regarding EVs in a specific market from a customer’s point of view. Here each variable asks “what is the benefit for the customer?”. Therefore, for the supply side, we included variables like the number of available models in different categories and from the demand side the priorities of the customer like price, quality, innovation etc.
Q. With Norway at the highest readiness level, how do you compare the scores to large geographies like China and India? Norway has a small sample size to begin with?
A. Generally, all metric are calculated relatively. For example, in the category charging infrastructure, we look at variables like “charge points per highway kilometre” or for inner-city charging at “charge points per 1,000 population”. Our core target of measuring the benefit of an EV compared to ICE for the customer is rather independent of a country’s size. However, in larger countries like China, change is harder to implement as in smaller countries like Norway. We acknowledge this fact in our report by discussing the situation in each country with dependence on factors like GDP and average income.
Barnik Chitran Maitra, Managing Partner at Arthur D. Little India and South Asia
Q. How do the ambitious nations compare to the starter nations in
the report?
A. We see a very similar development in all evaluated countries, however, time-displaced. The countries on the upper ranks in the evaluation started their journey toward EV already many years back. In particular, the introduction of government incentives plays a significant role in bringing EV costs down and driving public opinion more toward EVs. Norway for example, started such initiatives almost 20 years ago, which pays off now. Countries like India have just started on this journey but will see a similar uptake in the coming years.
Q. How much of it is to do with Govt. interventions and incentivisation?
A. We see government incentives as a clear driver for EVs. The incentives help to bridge the gap to make an EV attractive for customers to think about buying and for manufacturers to invest in. The incentives level the playground with the ICE industry that built carefully optimised ecosystems over many decades. You can think of government subsidies as a kind of Kickstarter. Once the EV ecosystem is running on a full scale, with lower production costs and well build infrastructure, incentives will not be needed anymore.
Fabian Sempf, Principal Arthur D. Little India, Local Head of Automotive Practice
Q. Are there some regions that are doing away with incentives?
A. Again, incentives as required to kick-start the EV ecosystem. In our study, Norway reached a score of 116, with 100 marking the point where EV and ICE are equally beneficial for customers. This means that Norway could dial back on subsidising while EV still stays more beneficial for customers than ICE. Other countries will reach this point in the coming years as well.
Q. Does the India FAME outlay compare well to global outlays in regions with a higher adoption rate?
A. Countries are at different levels of EV adoption and customer acceptance and accordingly, they are using different types of policies/incentives for furthering EV penetration. According to our Global EV report, India currently lags behind countries like Norway, China and Germany in terms of regulatory support for EV adoption. While India scores 14.47 in regulation, countries like Norway and China score above 20. However, we believe that subsidies will have to be timed thoughtfully and Indian government has been taking steps in the right direction. If you see a country like Norway is now starting to withdraw the subsidies provided earlier as EV adoption has picked up already.
Q. A word on some of the pioneering companies (both OEMs and tier suppliers of emobility including startups) contributing to the adoption of EVs.
A. Globally, Tesla certainly is the first name that comes to mind. Tesla has not been the first to the EV game, but they have been the first to figure out how to scale EVs for passenger cars, not only in terms of production but also regarding marketing hype, which was important especially when Tesla started the Model S in 2012. In India, EV was pioneered by Reva already back in 2001. The car certainly had some drawbacks, but it started a public discussion on electric mobility. Despite the early start, the real uptake of EVs in India has to be credited to more recent start-ups, especially in the two-wheeler space. Companies like Ather and Ola Electric not only understand how to design electric vehicles that the customer wants to buy but also understand how to drive the hype about electric mobility, which is equally important. Companies are thinking holistically about not just offerings their vehicles but building the entire ecosystem of battery manufacturing and charging/swapping either by themselves or with partners.
Q. For starter nations like India/Brazil what are the major challenges regarding cost and infra?
A. In many of the countries in the ‘Starter’ category, especially in India, customers are very price sensitive. Historically, average prices of cars in Starter countries have been on the lower side and the offering in the low-price segment is very strong. At the same time, there is no mass-production of electric vehicles and components in those countries so far. Combined, the price difference between EV and ICE is larger than in the countries of the ‘Ambitious Follower’ group. Also, additional benefits like environmental friendliness do not play such a significant role in Starter countries like with the Ambitious Followers. This means that government subsidies would need to bridge a quite significant gap to make EVs attractive to customers.
In terms of infrastructure, there is always the chicken-and-egg problem. As long as there are no vehicles, investing in infrastructure doesn’t make sense and the other way around. In the Starter countries, very often we see additional challenges in technology that make building infrastructure harder. For example, the power grid in many areas is not capable of supporting large amounts of charge points simultaneously. Also, often times, especially in rural areas, the needed data connection to the charge points does not work reliably. Finally, to provide a country with a greener alternative for mobility, the needed energy would need to come from renewable energy sources. However, today over 70 per cent of India’s electric power comes from burning coal, oil or gas. So, to achieve the goal of greener mobility, the challenge in infrastructure goes well beyond building charge points.
Q. In the markets with higher adoption, is growth driven by PVs or CVs say public transportation? How do you see it playing out in the future?
A. In early market phases, big fleets are usually one of the main drivers. In China, for example, taxi fleets and buses. In European markets, corporate fleets are important. Transport and delivery fleets with high electrification targets for the next years (Amazon, Ikea, DHL). Also, public transport (Buses), some cities only buy electric buses looking forward. All kinds of large-scale inner-city fleets heavily profit from the advantages of EVs very early in a country’s transformation process and therefore pushing the conversion to EVs forward. However, when inner-city transport reaches saturation, PVs are the next category to drive change forwards. For long-distance commercial vehicles, ICE will prevail the longest. Even in Norway, we see that heavy-duty trucks are still almost fully driven by combustion engines.
Q. When do you expect India’s two- and three-wheeler winning run to extend to other segments? For example light, medium and heavy commercial vehicles including buses and trucks?
A. As described above, we see already today a significant shift towards EVs for inner-city transport (mainly buses and last-mile delivery commercial vehicles). Also with taxis, we will see a constantly rising EV adoption over the next years.
For a private four-wheeler, some prerequisites need to be built up first. This includes a broader availability of EV PVs in the low-cost segment and more convenient charging (more and faster charge points). Even though interest and sales numbers of EV PVs will constantly grow over the upcoming years, we expect this to be slow over many years and just pick up significantly well beyond 2030.
For light commercial vehicles, adoption can be expected to be a bit faster than for heavy-duty vehicles. For heavy commercial vehicles and trucks, the story is the same, but it will take even longer. We do not see a significant uptake before 2035. Also, alternative power trains like fuel cells are being explored for heavy commercial vehicles with long-haul requirements, by leading OEMs across the world.
However, this is assuming a rather constant progression based on what we know today. Over the last years, we have seen the significant impact of events like the Covid19 pandemic, the war in Ukraine or a significant change in policy after a change of power. Such singular events, which are impossible to predict, can change the prediction completely and could lead to a much faster adaption of EV.
Q. Do you see India focusing on scaling up DC charging infra cited as quintessential?
A. Yes, India needs to build sustainable charging infrastructure to manage the higher load in the coming years. Given that DC charging provides a much faster-charging capacity, installing these chargers on highways can help in serving passenger as well as commercial EV vehicles. Although as per the current state, India needs to focus on building a smooth charging ecosystem where the government, power companies, OEMs, etc. can all help in providing reliable and affordable charging facilities to the end customers.
Q. What would be the next tipping point in EV adoption and when do you see greater parity in different nations and the scales of adoption?
A. Our study is designed exactly around the question of this tipping point. The key question is: When is EV equally beneficial as ICE? This is the point that we defined as a score of 100 in our study. As described, all countries are on the way toward reaching this goal, however, it will be faster for some and will take longer for others. The ambitious followers will most likely reach the point in the next five to seven years, in the starter countries, it will take 10-15 years still to reach equality between EV and ICE across all segments.
Q. Are PE funds and investors fuelling this adoption with generous seeding rounds based on high valuations?
A. VC funds and investors have been very bullish in the e-mobility space. For the last five-years funding for start-ups has been growing exponentially (just barring the pandemic year 2020) In fact in 2021, venture funding reached an all-time high of USD 444 mn across 25 transactions, despite the second Covid19 wave and extended lockdown. Investors are looking across the value chain. Along with OEMs like Ola Electric, Bounce etc., ecosystem players like battery manufacturers (e.g. Log9, Lohum) and changing infrastructure players (e.g. Magenta, ChargeZone) have raised large amounts from investors. Even the early-stage startups, across the value chain, have been able to raise seed capital with aggressive valuations. This will surely fuel the adoption of EVs as there will be more offerings in the market, more competition will lead to better products and price points for customers and a rapidly developing ecosystem will boost customer confidence in electric vehicles.
Q. Is financing of EVs comparable to ICE vehicles? Any region that has got it right?
A. Financing options are comparable for EVs and ICE vehicles. For electric scooters, nationalized banks as well smaller banks and NBFCs have tied up with OEMs for the financing of vehicles and are offering similar interest rates as ICE vehicles with 10-15 per cent down-payment required. For electric scooters, decent tenures as long as four years are being offered by some of the financiers. As there exists some concern about end-of-life residual value or resale value for an e-scooter, some of the OEMs are offerings assured buyback offers as well. Newer models like subscriptions and operating leases (in case of commercial use) are being implemented by EV OEMs and ecosystem players. We see in the market now that customers are concerned about the resale value of their ICE vehicles as EV adoption is picking up. Across most of the countries we studied in our global report, financing options for EVs are very similar to ICE vehicles.
Q. How do the regions compare when it comes to standardisation of the EV ecosystem including key drivetrain components?
A. Standardisation across manufacturers is especially needed regarding the charging technology. For PV, a small number of global standards exist, e.g. charging connector, and charging capacity, so that charge point operators can support all of them relatively easily. In other areas, especially for two-wheelers, many companies currently work with proprietary standards, completely sacrificing inter operability. This trend can be seen globally. In terms of drivetrain components, the ecosystems seem to evolve very similar as we see in ICE. Each OEM has a platform and has standardised its parts with little interoperability between manufacturers. However, as this model worked very well in ICE for many years, we expect it to continue. We do not see a distinct difference between regions in terms of standardisation.
Q. What is the adoption rate of renewable energy sources in regions with a higher EV adoption rate?
A. Not surprising, we see a correlation between a government’s interest in electric mobility and renewable energy. All of the top-scoring countries in GEMRIX are pushing renewable energy heavily. Norway for example sources a significant part of its energy from hydropower. Overall, Norway generates more than 50 per cent of its energy consumption from renewable sources. In Germany, for example, it’s approx. 20 per cent.
Q. Do you see battery costs as a deterrent for starter nations? When do you see a level playing field coming in?
A. Battery cost is the largest contributor to the high cost of EVs. This is true not only for starter nations. At the same time, many companies around the world invest heavily to make battery technology more efficient and cheaper. For example, Lithium Iron Phosphate (LFP) batteries can be a solution to reduce cost in certain scenarios, which can be seen in China. Additionally, research in entirely new battery technologies, like salt-water batteries, for example, is at an all-time high. Battery technology will likely see at least one breakthrough in the next 10 years in addition to the continuous optimisation of existing technologies. However, as the demand for batteries will also rise significantly over the coming years, recycling will play a significant role. Generally, using recycled batteries could be cheaper than sourcing raw material for new ones, if the ecosystem is optimised accordingly.
Lastly, despite high battery prices, a parity can also come in as requirements for ICE will rise. In Europe, for example with the soon-to-come Euro VII standard, requirements will rise to a point where constructing ICE vehicles will get more expensive than EVs.
Q. How mature is the after-life handling in regions with a higher adoption rate? What can starter nations learn from them?
A. Generally, there is almost no after-life handling for EVs anywhere in the world due to the simple fact that even the first EVs sold on a larger scale are still good to go on roads for at least five to 10 years more. However, battery recycling already plays a significant role today, as, during battery production, many of the cells do not meet the quality standards and need to be recycled immediately. China is leading with the highest capacities for battery production and recycling likewise. Europe and the US are catching up quickly. Therefore, the key learning here is the need of scaling up production and recycling of batteries at the same time.
Q. To sum up, growth and challenge areas for the adoption leaders, aggressive adopters and the starter nations alike?
A. As described, the EV journey is very similar in the different countries but time-displaced. However, countries like India face some additional challenges (need for strengthening the power grid, changing power production to more renewable energy sources or coping with the customers’ expectation of low prices). Still, we are confident that all countries will overcome the challenges eventually and will reach the point of equal benefit between EV and ICE.
