Government Allows Sale of Electric Vehicles Sans Batteries: What Does it Mean for the Future of EV in India?

Electric vehicles (EVs) dominating the automobile industry is a promising hypothesis that we have grown used to learning over the better part of the last decade. The entry of big players into this niche auto industry in recent years like Warren Buffet and Toyota (investing in Chinese automaker BYD) or Tesla emerging as the world’s largest electric vehicle manufacturer, has breathed much-needed realism into that hypothesis. In India, however, growth in this segment has been slow and rather worsened by the pandemic as sales are reported to have taken a major dive.

What is the New Notification on EVs About?

The Ministry of Road Transport and Highways has consequently emerged with a novel plan to allow registration (and sale, impliedly) of electric vehicles in India without pre-fitted batteries. What this means is that owners can choose to buy the automobile and the battery components separately and not as a wholly built-in unit as was required before.

How Does it Change the Existing Regulations?

This new measure is expected to strike far-reaching effects as far as the intended target for electric vehicle presence in the country goes. It is understood that ‘batteries can be sold and registered based on the type of approval certificate issued by the Test Agency’. These certificates are issued by a handful of agencies as mentioned under Rule 126 of Central Motor Vehicle Rules (CMVR), 1989, which in turn require appropriate testing and compliance of the EV prototypes (the first or preliminary version) submitted by the manufacturers.

The Government has expressed a bonafide interest in promoting the eco-friendly transition of the vehicular sector from fossil fuels to renewable sources. The NITI Aayog formulated ambitious strategies to that end by stressing upon the need to reduce battery costs, improve vehicular efficiency and build robust charging infrastructure. The batteries which account for approximately 30–40% of the vehicular costs are their key components and so, one might ask as to how exactly is delinking their sale from vehicles might impact the auto sector.

How will it Affect the EV Industry?

Some of us might be wondering, ‘What is the big deal? I buy devices and batteries separately all the time. After all, it preserves electricity from being wastefully consumed across the electrodes!’ It might, however, be a little less simplistic than that.

EVs typically employ AC-powered batteries which, unlike our DC-powered watch batteries, are rechargeable by nature. Although the cost of batteries has fallen by almost 80% over the last decade, the comparative cost of EVs hasn’t reduced by a similar measure. Therefore, if a user wished to economise his/her purchase by having their vehicle and battery assembled together from two different manufacturers, they could reduce costs significantly on the cumulative index.

Battery Quality

The emergence of EV manufacture and circulation is still at a nascent stage in India, which explains why a major chunk of the industry still relies on Lead-acid batteries in place of the standard Lithium-ion batteries for EVs. Given that the Li-ion batteries come with a higher upfront cost, the new notification would come in handy to incentivise their use by enabling automakers to cut back on non-essential components and invest all residuary proceeds towards the improved Li-ion batteries.

Battery Swapping/Battery Leasing

Battery swapping is the process of switching out old or discharged batteries for new ones. Battery leasing, on the other hand, is essentially renting out the battery for a stipulated cycle. A good example of the latter is the purchase package offered by companies such as Renault which allow customers to buy a Zoe EV and lease the battery which reduces the upfront purchase amount.

Both these operations are expected to receive a major boost, courtesy of the notification which is essentially proposing a new paradigm wherein duties related to customs, imports, etc. Will be significantly reduced. It is because the tariff structure is lesser for single components such as batteries than for a wholesale EV, keeping in mind that duty is proportional to the overall cost. This reduces entry norms for small automakers who have been trying to enter the EV auto market for so long.

What are the Concerns of the Auto Industry in India?

Although the notification has been welcomed by a large part of the industry, some are sceptical about the uncertainties in the proposed strategy. The first is in relation to enabling sale and registration of EVs without batteries. Mahindra Electric has termed this as a move ‘nowhere else allowed in the world’. While it may be cheaper to encourage assemblage for now, in the long run, customer-reliance on reliable and wholesome company-generated hardware is inevitable. Delinking of batteries may push for an unwarranted increase in pirated electronics merchandise.

The second concern is in relation to enforcing performance standards. Under CMVR, 1989, the Original Equipment Manufacturer (OEM), meaning the company that produces the overall vehicle is responsible for its safety and warranty. This seems an unbalanced burden on the OEM in light of the new notification. Since the battery is an integral component of the EV, issuing sale and registration certificates without testing the EV’s holistic performance while connected to the battery, seems redundant.

Setting and Realising the Objective

In the interest of making a progressive shift from fossil to alternative fuels, heavy promotion and incentivisation of EVs is imminent. It must be kept in mind that countries with high EV-penetration, have achieved so with a mix of policy and R&D strategy. Tax credit goes a long way in attracting sector-specific investment, as it did in Belgium. This is why the separation of EVs and batteries in our country must reflect in the GST rates for both in the coming months. Direct aids and benefits along the lines of the FAME Scheme is the next major policy intervention that is necessary to augment the purchase and usage of EVs.

Most importantly, without dedicated infrastructural buildup, the possibility of transitioning quickly into a low carbon-emission regime is impractical. Mass construction of charging stations, free parking access, demarcated low-emission zones, zero-toll policy and emphasis on fleet promotion by allocating resources for a massive overhaul in public transportation are some of the basic exercises the government could enforce to increase the intended green mobility in the country.

(Originally published 30th August 2020 in transfin.in)