Rise of Electric Vehicles: Headwinds for Oil & Gas Sector in India

Rise of Electric Vehicles: Headwinds for Oil & Gas Sector in India

17 Aug, 2018 by Manas Das, Abhijeet Singh

Infographic on Electric Vehicles in India

Would it be the end of the road for Oil & Gas companies when vehicles go “all-electric”?

The most talked about topic in automobile industry is the re-emergence of Electric Vehicles (EVs) as a means of mobility. When Mitsubishi Motors and Nissan rolled out their electric cars in 2010, these companies were also betting big on the future of electric vehicles. But the revolution failed to materialize, and the world carried on using oil & gas-based resources for automobiles.

Even before that, the first electric car Reva was launched in India in 2001 by Maini Group of Companies, Bangalore. The two-seater hatch back was launched at a price of Rs. 2,50,000 per unit. The running cost for the car was around Rs. 0.40/km ($ 0.005/km). The price of Maruti 800 Dx at that time was approximately Rs. 2,25,000 with a running cost Rs. 3/ km ($0.04/km). The Indian electric car couldn’t create a revolution due to its high cost and lack of subsidies.

Download the full report on Rise of Electric Vehicles-Headwinds for Oil & Gas Sector in India

When it comes to EVs, there are few things that separate India and the economies of the first world countries. The growth in income levels and demand in mobility have a direct correlation. The position of India on the S-shaped adoption curve of electric vehicles is different from developed countries like Norway, Iceland and Netherlands. 

The demand is low at lower income levels and grows exponentially with income, eventually plateauing at higher levels of income. The lack of consumer trust in electric vehicles for personal use, non-availability of charging infrastructure and prohibitively high cost of EVs are the main factors behind this slow adoption.

Fast forward 2018, countries are again revving up to minimize share of fossil fuels in automobiles and shift consumers away from internal combustion engines. Countries like Norway and the Netherlands are planning to phase out registration of all fossil fuel powered automobiles by 2025. The UK and France plan to halt sales of new oil-fueled cars by 2040. Emerging economies like China and India are also moving in the same direction, both having ambitious plans for 2030. The ripples of this shift have been felt by energy companies around the world and oil & gas companies in India are also gearing up for the imminent threat from EVs. Oil & gas companies around the world are revising their electric-vehicle forecasts upwards as improving battery costs challenge previous assumptions about growth. For this report, we consider 4-wheeler (mainly cars and SUVs) Electric Vehicles (EV) to include Hybrids or HEVs and plug-in hybrid electric vehicles, or PHEVs.

The China Vs India Electric Vehicle Story
Between India and China, the latter has clearly emerged as the winner in Round 1 of electric vehicle revolution. More than 28 million vehicles were sold in China last year, and annual sales are forecast to top 35 million by 2025. This would be more than the double of current US vehicle sales of 17 million per year. On the electric vehicle front, China sold 579,000 PHEVs in 2017, more than double of EV sales in United States of America.

Daimler (parent company of Mercedes-Benz) is in advanced level talks to build electric Smart cars in China. These small vehicles known as “microcars” and subcompact cars would be built in $ 1.9 billion Joint Venture (JV) plant with Beijing based BAIC Group. Tesla is also following the footsteps and plans to build a plant in Shanghai at expected investment of $ 5 billion . BMW has agreed to increase its output at BMW Brilliance Automotive JV to jointly produce 520,000 BMW brand vehicles in 2019. Volkswagen Group (China) has signed MoU with Anhui Jianghuai Automobile Group Corp., Ltd. (JAC) and SEAT to establish R&D center with focus on developing electric vehicles.

Meanwhile, on the policy front India appears to be moving gradually to grow its Electric vehicle fleet. As per recent statements from Niti Aayog, the country would not be favoring the subsidy route for EV adoption. This puts India in a stark contrasting positioning on the magnitude with which the country sees EV revolution. India plans to have 30% of its vehicles running on electric power by 2030. This goal is the revised version of the earlier “100% electric vehicle by 2030” goal of the Govt. of India. Government think-tank Niti Aayog has asked at least seven ministries including Heavy Industries, Power, New & Renewable Energy, Road Transport and Shipping and Highways, Earth Sciences, Urban Affairs and Information Technology to frame guidelines to encourage the use of electric vehicles. 

As per industry, EVs would require subsidy from the government for at least 5 years to offset the high upfront cost of owning an Electric Vehicle. The state-owned Energy Efficiency Services Ltd, plans to procure 10,000 electric cars by March 2019 for government officials by replacing Internal Combustion Engine (ICE) vehicles. The Govt. of India plans to come up with a policy that has regulatory framework and technical standards on EVs by 2018-19. 

At the current pace and policies, it seems EVs would represent just 10% of passenger fleet in India by 2030. The lack of clarity is leading to mixed reactions from certain makers like Hyundai that are deliberating their decision to produce EVs locally against importing them. The company plans to launch Electric Kona next year, which would be imported in knock-down state and assembled at its Chennai plant. On the other hand, Tata motors is quite optimistic about its electric vehicle plant at Sanand manufacturing facility in Gujarat.

Suzuki, the parent firm of Maruti Suzuki (India’s largest car-maker), announced its plan to set up a $600 million lithium ion-battery plant with Toshiba, Denso in Gujarat . Mahindra is also investing some Rs. 600 crores to ramp up its EV division and is expected to launch electric variants of its popular SUVs, Scorpio and XUV 500 .

Cummins India is ramping up research on electric mobility solutions in Pune and plans to manufacture batteries in India . Bus-maker Ashok Leyland has announced a strategic partnership with SUN Mobility, a transportation-solutions startup, to develop a battery swapping system for electric buses . Mumbai-based JSW Energy, too, plans to invest $623 million in electric cars, batteries, and charging infrastructure.

Some Indian States do have EV plans
In 2017, Karnataka became the first state in India to launch a state-wide EV policy. In January 2018, the Goa government announced to exempt electric vehicles from road tax. Maharashtra also launched its state EV policy in February 2018. Then in March 2018, the Uttar Pradesh government also launched the Draft Uttar Pradesh Electric Vehicles Manufacturing Policy. In June 2018, Telangana unveiled its own electric vehicles policy which is said to have several incentives for electric vehicle manufacturers along with benefit schemes for setting up charging stations in the state. 

Andhra Pradesh government plans to setup 50 Electric Vehicle Charging Stations in the state. It is one of first states in India to set a target of 1 million electric vehicles on roads by 2023. Toyota has already signed an MoU with Andhra Pradesh Government and is working towards the introduction of Prius PHEV and Small EV Commuter cars. The state’s EV policy will reimburse road and registration tax for EVs for next 5 years and EV manufacturers would get 10% capital subsidy for their manufacturing units. The government has partnered with AP Transco, the state’s transmission corporation, to facilitate setting up of 100 fast-charging stations in Amaravati, Vijayawada, Guntur, Visakhapatnam, Tirupati, and Tirumala. The first of such charging stations has been announced to come up at the Interim Government Complex in Velagapudi. With an investment target of Rs. 30,000 crores, the state also has plans to convert all existing city buses to electric by 2030. 

Changing Energy Landscape for Indian Oil & Gas Companies
India imported around 82% of its total oil demand for the year 2016-17 in comparison to 80.9% in 2015-16 and 78.5% in 2014-15. Its oil import bill was $70 billion in 2016-17 which constituted about 21% of total gross import (in values). Transportation continues to be highest oil consuming sector and use of Diesel and Petrol grew at 5.9% and 9.9% in the last 10 years. If the Electric Vehicle plan materializes, then in 2030 motorized passenger transport energy consumption could be 64% lower than current scenario. This would result in a reduction of 156 Mtoe in petrol and diesel consumption, or a net savings of roughly Rs 3.9 lakh crore (approximately $ 60 billion) at USD 52/bbl of crude. There would also be reduction of 37% in CO2 emission in transportation sector. As per ValuEndow research, 4-wheelers alone would replace around 2 MMT of crude imports even if 5% of current vehicles are replaced with electric vehicles.

The government wants to see 6 million electric and hybrid vehicles on the roads by 2020 under the National Electric Mobility Mission Plan (NEMMP) 2020 and Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME).

Assuming an electric vehicle has a 100 KWh battery size, annual additional demand for 6 million EVs is expected to be 93 TWh for India . It is estimated that an addition of 6 million Electric Vehicles by 2020 would require additional 8-10 GW of installed coal capacity. At the same time 600 million Indians are expected to live in cities and towns by 2030. This would put tremendous pressure on the electricity infrastructure of Indian cities. Bloomberg predicts that by 2050, 9% of total global electricity demand would come from automobiles, up from current levels of 0.2% .

Also, if the growth in Electric Vehicles adoption continues at current rate of 60%, global oil displacement would reach 2 million barrels per day by 2023. It also expects, the battery prices to drop more than two-thirds from the current levels by 2030. This would further boost the EV adoption growth rate.

This will also lead to change in competitive landscape for oil & gas companies. While they traditionally competed among each other for share of automobile fossil fuel, in the future these companies would be competing with electric & power utility companies for market share.

Power & Utility Companies are already making inroads
National Thermal Power Corporation, (NTPC), India’s largest power generating company, plans to set up EV charging infrastructure and is said to be working on a plan to reduce the cost of setting up EV charging stations to around Rs. 1 lakh according to a report. 

Tata Power Delhi Distribution Ltd (TPDDL), has also announced plans to invest around Rs. 100 crores to set up 1,000 charging stations for EVs across Delhi in next 4-5 years.

Bharat Heavy Electricals Ltd. (BHEL) plans to foray into manufacturing of electric vehicles such as buses, cars, two-wheelers and boats. The company was also among the 11 companies that have recently bid for setting up 2,000 electric vehicle chargers in the second phase of electric vehicle program. It is also in various stages of deliberations to set-up Lithium ion battery factory with global counterparts.

Securing Lithium Reserves: The Next big race
Lithium is a poorly concentrated mineral and produced by traditional hard-rock mining of lithium-bearing pegmatite and spodumene. The extraction is a money and time-intensive job. The least expensive method of obtaining lithium is thorough the evaporation of highly concentrated lithium brine . North America has only one lithium mine, the Albemarle Silver Peak Mine, and only one U.S. company is currently producing lithium from brine. Most of the world’s lithium comes from brine operations in Chile and spodumene operation in Australia. China and Argentina are also major lithium producers.
As on date, countries are making a mad dash for securing supplies of Lithium. Japan, once the pioneer in rechargeable battery technology is feeling the pinch from China. Panasonic, the Japanese pioneer is the world’s largest supplier of car batteries but is facing strong headwinds from CATL and BYD, two of world’s top five suppliers of Lithium Batteries.

If anyone wants a lesson in electric vehicle value chain integration, they should get it from China. The country has institutionalized strong policies and subsidies for electric vehicles. The country’s manufacturing firms control 50-75% of important components on cathode & anode materials, electrolyte solutions, and separators used in Lithium batteries. 

Meanwhile in India, a joint venture (JV) comprising Hindustan Copper Ltd, Mineral Exploration Corporation Ltd, and National Aluminum Corporation Ltd named Khanij Bidesh India Ltd. (KABIL) was formed in 2017. The JV’s prime objective would be to acquire mineral assets abroad and undertake mining in collaboration with the host nations. The Indian government recently reduced the GST on Lithium ion batteries from 28% to 18%. The import duty on the Lithium-Ion batteries is currently at 20% and Indian car manufacturers currently depend on imported Lithium to power their vehicles. 

Bolivia recently offered to sign a Preferential Trade Agreement (PTA)with India for select good including access to Cobalt and Lithium. Interestingly, China has already signed a PTA with Bolivia .

In the near future, India would be dependent on imports of Lithium from China and Australia to meet its goal of having electric vehicle fleet by 2030. This could be one of the reasons why Tesla chose China for its first GigaFactory outside of US but skipped India. This is partly because the infrastructure for even the stipulated 30% manufacture of its components does not exist in the country.

Battery Swaps and Charging Infrastructure
Battery swaps have the potential to eliminate the need of creating large-scale charging infrastructure for private electric vehicles. The current charging time of 1 hour(supercharging) to 4-6 hours (normal charging) could be cut down drastically to just a few minutes with plug and play battery models. An electric vehicle user can drive into a charging station and swap the car battery for a fully charged one in just few minutes. This would be just like driving into a gas station and getting the car tank refueled. 

Gas companies should look forward for providing “one-stop” solutions for Electric Vehicle owners. As the road to fully electric fleet is still far away, hybrid electric vehicles hold the key to the future. This ensures co-existence for gas companies with CNG as clean-fuel and battery charging and swapping support for PHEVs.
Adoption of electric cars on a massive scale would also be disruptive to the power grids. In a nation, that got 100% electrification in May 2018, the eternal debate would then stem around household vs EVs as beneficiaries of power. Large scale battery charging also has the potential to disrupt the power grid. A study in U.S. found that simultaneous charging of 60,000 cars had potential to threaten the Texas grid . Similarly, India would also require intensive capital investments in power infrastructure in India to meet its ambitious goals. 

Should Oil & Gas companies be worried?
The current pace of electric vehicle adoption doesn’t really threaten the position of Oil & Gas companies. By 2030, even if the current ambition of 30% electric fleet for transportation materializes, it would still leave the remaining 70% of the market to be served by fossil fuels.

However, going forward would require the following interventions from oil & gas companies in India:

1) Explore collaboration opportunities for Charging Infrastructure & Battery infrastructure
Oil & Gas companies can look towards integration with charging infrastructure firms to offer EV charging facilities powered by their fuel. This can turn out to be a revenue generation model to offset the losses incurred through the shift of vehicles from fossil fuels to EVs.

This infrastructure can be provided in parking spaces of malls and residential areas along with office complexes. Companies can also explore options to provide charging infrastructure at their existing fuel stations or have dedicated EV charging stations across the cities.

Oil Companies are already making investments in firms that manufacture batteries to provide advanced storage solutions by utilizing their expertise in energy management. There is a potential for creating fast charging solid-state batteries and energy companies can be a partner in this evolution.

2) Partnerships with shared mobility services
Oil & Gas companies could also explore partnership opportunities with companies that offered shared mobility services such as Uber and Ola. In this, a revenue model can be explored to give privileged access to these services at the gas stations for serving the electric fleet of these providers. Shared mobility is going to pick up further in India and Transportation as a Service (TaaS) would also gain momentum in India. Hence, it is prudent to explore such partnerships.

This would also create an environment where shared mobility service providers can choose a preferred partner for their other fuel requirements. There is going to be demand for clean fuels even after India adopts electric vehicles so it’s an opportunity worth exploring.

3) Invest in clean fuel hybrid technologies
CNG is one of the cleanest fossil fuels and its utility would still exist after the arrival of electric vehicles. Clean fuel companies should collaborate with automobile manufacturers to develop clean fuel hybrids that can run on both CNG and Electricity.

Oil & Gas companies should stay ahead of the curve and undertake value chain integration exercises. They should treat themselves as energy solution providers for all segments of vehicles. It can be either in infrastructure for charging, partnerships with shared mobility services, utilizing fossil fuel-based resources for charging EVs or in collaboration with automobile manufacturers to design hybrids that run on clean fuels like CNG and electricity. 

These are exciting times for oil & gas companies to break away from their core competencies and partner with startups that are developing the next generation solutions for electric vehicles. 

The future is in collaboration for making the earth a better place to live in.

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