Naveen Munjal, the managing director of Hero Electric, which unveiled a clutch of e-bikes at the Auto Expo, speaks to Hormazd Sorabjee on what’s needed to unleash the full potential of EVs in India, battery charging as a growth driver for the industry, the impact of electrification on existing OEMs and dealers with conventional products, and the need for stable governmental policies.
What, according to you, are going to be the major triggers to electrification in the mobility space?
There are a number of triggers required to make the switch to really take off from conventional vehicles to EVs. While critical mass also includes infrastructure, however, setting up just a few charging stations in a city alone would not give any wind to the sails of this ship. Prime attention has to be paid to the fact that the solutions have to be widespread and cost effective.
Once such a low-cost, charging infrastructure is in place on a sufficiently large scale, then there would automatically be no need for larger batteries, at least in small vehicles, leading to an overall cost reduction in EV prices. Moreover, two-wheelers are the low-hanging fruits in the electrification drive as the effective battery range required on these vehicles is lesser compared to other vehicle forms. The battery-to-wheel ratio, which is essentially the energy generated by a battery being converted into the available power at the wheel, is much better in electric two-wheelers than electric three-wheelers or even four-wheelers for that matter, thus making the total cost of ownership of an electric two-wheeler far lower.
The other trigger is financing. Today, over 70 percent of the regular two-wheeler sales occur through the financing route, while only 2 percent of electric two-wheelers are financed. The reason is that the majority of the market is concentrated in the low-speed, two-wheeler segment, only having an electric motor no bigger than 250W and capable of attaining a maximum speed of 25kph. These electric two-wheelers are not bound under the Motor Vehicle Act and, hence, do not need any registration. This is where the majority of the market is concentrated right now and due to lack of traceability, financial institutions are wary of financing these vehicles.
However, EVs also come with a certain threshold and taking the case of an electric two-wheeler, once the vehicle grows in its capability to go beyond the 75kph speed mark, the electric two-wheeler loses its efficiency and is more suitable to be sold as a leisure product, rather than a basic means to commute. So, we are now trying to shift the belly of the market from low-speed to medium-speed vehicles, which would lie between the 25kph to 45kph speed range and bring them into the ambit of the regulations. Hence, we feel that medium-speed, electric two-wheelers are going to bring the majority of the volumes in the electric two-wheeler space.
While costs are gradually coming down, financing is also going to begin for electrics in the medium to high-speed range, and collectively, this would boost their sales.
While the industry can be ready, would the government be ready with the infrastructure and the regulatory framework for these vehicles?
It is going to be a collaborative effort between the government as well as the automotive players and we have to jointly make strides towards this cause; this is not just the government’s prerogative. The technology is out there and we have already collaborated with utilities like Tata Power to provide charging infrastructure for certain applications in closed premises. We have also installed our chargers at campuses in Delhi University, but installing such chargers at a public place is a different ballgame altogether and needs a lot of permissions. It is the local authorities, local municipal corporations, utilities and the technology providers, which are linked to installation of these chargers and thus, charging infrastructure is going to emerge as a new business, and a very large one in itself.
With lighter battery packs in case of lithium-ion technology, battery swapping is going to be an easy affair and will emerge as another lucrative business opportunity in the automotive sector in the coming future. It is going to be immensely beneficial for commercial operators, including bike taxis, e-rickshaws and electric three-wheelers.
Naveen Munjal with Hero Electric's range of e-two-wheelers.
While the concept is much easier and relevant for two-wheelers because the platforms are usually small to be played around much with from vehicle to vehicle, and more so with two-wheelers having a common-sized cavity to accommodate the battery pack, it is, however, not the same with cars, wherein the battery size would differ from segment to segment, for instance from sedans to SUVs. Batteries are going to become standardised for electric two-wheelers in the coming future as well.
Some of these triggers are just waiting to happen. We have already started introducing Li-ion swappable batteries in our offerings, but the problem is that our own reach is very limited to considerably change the paradigm. Electric two-wheelers today comprise merely 45,000 units out of the total 16 million two-wheelers to be sold by the end of this fiscal. However, estimates suggest the number will grow to about 2.5 million units in the next five years until 2023 and to over 10 million units on road in the country by 2028.
Will electric mobility bring every manufacturer, big or small, to a level-playing field and would the existing big players be impacted significantly with the emergence of electric vehicle technology in the two-wheeler space?
In an electric vehicle, there are nuances which the big players do not have, and that is why some of the large companies are seen investing in small start-ups to gain that know-how. Moreover, the entire business ecosystem today is geared towards conventionally powered vehicles. From manufacturing to retail and to service of the vehicles, everything is all inclined towards traditional products with the amount of parts involved and their sheer volume. A dealer is slated to lose on the profit margins earned on servicing a conventional two-wheeler if the similar setup is retained for an electric fleet as well. Hence, there needs to be a different setup, reworked to be viable for EVs, which are inherently low-maintenance vehicles. So, there needs to be a different model for each of these two vehicle categories.
Globally, the combustion engine and electrics don’t go hand-in-hand. We were very clear with our strategy right from the start, to keep our bicycles, conventional two-wheelers as well as the electric two-wheeler business completely separate entities. When we started off in 2007, we had anticipated and created a standalone network of electric two-wheelers, which today stands at 300 dealerships across 22 states in the country, along with 150 sub-dealers catering to the hinterlands. We also experimented and test marketed e-rickshaws and appointed different dealers for that category as the electric two-wheeler customer is of a completely different demographic than the one eyeing an e-rickshaw.
There is a huge cost and huge handholding that goes into developing an individual dealer network. For instance, we have trained close to 2,000 roadside mechanics and made them acquainted with handling even the basic jobs like repairing a flat tyre on an electric scooter, which has its motor mounted at the rear hub. From denying customers that they would not know how to handle it, we have invested a lot in spreading knowledge and imparting training to the people on the ground, which would help in making EVs more acceptable.
Another revolutionary business model for the technology could be the application of electric two-wheelers in the fleet of e-commerce delivery vehicles and food delivery vehicles as well. With a low-range requirement and notable improvement in delivery costs due to the use of EVs, this accounts for a huge market. While we already have a lot of B2B sales happening on the ground, we are still working on the ownership aspect of this model. The ownership could lie either with the rider, the company, the aggregators or the financier. We are confident about cracking that in the next couple of months and once that goes through, it would only enhance our fleet sales numbers.
What is the current price differential between an electric scooter and a conventional one?
Here, we will have to make an apples-to-oranges comparison as an electric scooter today is not designed to attain speeds as high as 100kph, which a traditional scooter is capable of doing. Now, if we keep that aspect aside, and look at an electric scooter which does up to 45kph and has a range of 100km on a single charge, then that costs around Rs 85,000, out of which the battery comprises almost half the price. On the other hand, a petrol engine-powered scooter in the 100cc segment costs somewhere around Rs 65,000. It is essentially the battery, which is the formidable component inside an electric.
So, clearly batteries then are the key to the entire EV business. How soon are we going to see mass adoption of Li-ion batteries?
Battery is certainly the key, but rather than battery, I would say that it is the energy storage device. What today is being sufficed by a battery could tomorrow very well be replaced by a hydrogen fuel cell or maybe some other device. The past 10-15 years have seen a lot of research in the battery technology space. Many countries are realising the need of not relying on just one rare earth metal and we can already see battery compositions being tweaked in the form of lithium-cobalt and batteries getting constantly improved.
Moreover, as we move from oil to batteries, the next thing in the horizon could be hydrogen, where already Japan and Norway are doing immense amount of studies to not just safely store, but also produce hydrogen to finally drive the fuel cells.
Battery right now is a limiting factor but, in the long term, as battery efficiency increases it is going to be a liberating factor. There is a differential in cost between lead acid and lithium-ion batteries, which currently ranges between two to three times of the prices of the two. While the shift is going to be a gradual one, battery prices are set to fall dramatically over the next couple of years, which would then mean almost a negligible difference between the two battery types.
We offer a standard warranty of three years on the batteries coming equipped with our scooters. If used efficiently, a lithium-ion battery can easily last up to five years and even more. So, if we do the math and compare a conventional scooter with an electric one, then, even if one does not take the subsidy into consideration, the EV comes out to be significantly cost effective in terms of the total cost of ownership. The only difference is that in a traditional two-wheeler, one has to pay the entire amount over a span of five years, while in case of electrics, it goes all upfront.
What, in your opinion, should the government do to incentivise EVs? The NITI Aayog has taken a lead in this aspect and charted the roadmap for India but what should be the step forward to lay a framework for EVs?
The first was the NEMMP (National Electric Mobility Mission Plan), which came out as FAME (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) I in 2013. Now, FAME II is on the anvil and is expected to be rolled out by April 2018.
In India, EVs are charged 12 percent GST, along with an 18 percent additional GST on the batteries. In return, the subsidy being remitted is between 14-16 percent of the vehicle’s price. So, effectively, it is not a direct subsidy, but simply rotation of the money when compared to countries abroad, where there is a clean waiver of the VAT or GST on EVs. The government has been subsidising diesel and petrol for quite some time; electric technology is a much cleaner option in that regard.
We want the government to frontload the subsidy in the initial stages to build the momentum for EVs. There are enough people sitting on the sidelines to invest into battery charging infrastructure, battery swapping, et al. So, there is enough ready to spearhead in the infrastructural space, it is just the traction which needs to be built towards EVs. Policies should be stable at the end of the day and there should not be a knee-jerk reaction from the government.
Do you think that the automotive sector not being categorised directly under one ministry is again a big challenge in terms of policy stabilisation?
I don’t really think so. At the end of the day, the entire decision making comes down under the Department of Heavy Industries (DHI) and we haven’t really found that as a problem. Of late, they have understood the electric mobility scenario very well. The DHI has had good consultants of the likes of the Rocky Mountain Institute, which have been transferring sufficient knowledge to understand the whole EV structure in the automotive ecosystem of the country.
Now, the question is how the government strikes the right balance between setting up the infrastructure, switching public transport to electric mobility and, last but not the least, defining just the norms and not mandating a certain technology for the future of mobility.
The Rocky Mountain Institute study reflects that electric two-wheelers and electric three-wheelers are going to provide the initial thrust to e-mobility in India. A classic local example of that is the rise of e-rickshaws in the country, even though no charging infrastructure was developed for them by the government.
Once these vehicles started making commercial sense, their charging infrastructure was brought up by the users themselves. It is, however, one of the most unorganised, unregulated and fragmented forms of EV charging infrastructure, which is exactly where more resource allocation needs to be done in the coming future.
Almost a million e-rickshaws are running on our roads today, with the major concentration coming in from hinterlands in Uttar Pradesh and Madhya Pradesh. While these vehicles are highly unsafe and unregulated, L5 norms, which would define the high-speed safety standards for these e-rickshaws, are set to be announced in June, which is when we would also enter the segment and diversify our electric mobility business.
This interview has been published in Autocar Professional's February 15, 2018 issue.