Anand Ganapathy Chennira on why subsidy policies related to EV batteries need to be relooked

Today, electric vehicles (EVs) in the market are predominately of three types and each of them are segregated according to how their batteries are recharged. Fixed battery EVs, as the name suggests, do not allow the owner to remove the battery pack from the vehicle. These EVs have to be charged when they are parked.

This could pose a problem for users who do not have access to electric connections where they park their vehicles, and this is where the EVs with removable batteries come in. The customer parks his/her vehicle, removes the battery and carries it home or to the workplace where it is recharged and then refitted into the EV fully replenished.

Swappable batteries, although also have the ability to be removed from the vehicle, can only be recharged at the specific swapping station. The user simply rolls into a swapping station, takes out the spent battery and puts it into the kiosk. This battery is then checked by the software within the kiosk for parameters such as temperature and then charged using the optimal voltage in an actively cooled environment. This ensures that the batteries last longer and provide enhanced safety for users. Meanwhile, a fully charged battery is taken out from the same kiosk and fitted back into the EV. All of this takes less than five minutes to do, which is quite similar in terms of the time it takes to refill the tank of a petrol or diesel automobile at a fuel station.

A single solution for myriad challenges

These three solutions for battery replenishment have arisen from three unique usage requirements. But as of today, it is battery swapping alone that allows for a virtually limitless range for vehicles operating within the areas supported by the network of the respective swapping service provider.

However, the alleviation of range anxiety is not the only benefit for users of EVs with swappable batteries. By separating the cost of batteries, which comprise approximately 40 percent of the total cost of an EV, the entry price barrier is brought down nearly to that of a comparable vehicle propelled by an Internal Combustion Engine (ICE).

This translates into significant savings, which is very crucial for the ultra-price sensitive three-wheeler market that is almost entirely devoted to commercial usage.

These economics get exponentially larger with the light commercial vehicle segment (LCV). If an ICE LCV costs Rs 5 lakh, the electric version with a fixed battery would cost approximately Rs 11 lakh, while that with a swappable battery would cost about Rs 5-6 lakh. Aside from being much cheaper than the fixed battery version, the LCV with the swappable batteries can be used much longer every day — all thanks to the substantially lower battery replenishing time – and therefore provide a larger earning potential.

Apart from the savings in the purchase price, EVs can also stand to benefit from the new laws being implemented to curtail vehicular pollution in densely populated urban areas. In Mumbai, for example, ICE LCVs can only be used within the city for the first eight years, but this is not applicable for electric LCVs. Thus, by being able to be used for a longer period, the slight initial difference in price for the swappable EV can be easily offset in the seven additional years that the vehicle can be used within the city. This, coupled with the innately lower running costs of an electric vehicle, make it an extremely attractive buying proposition for an LCV operator.

Another unique advantage with battery swapping is that customers always have access to better battery technologies as they evolve. So, while the actual swappable battery EV remains the same, the efficiency actually improves with the passage of time, as opposed to the degradation – and ultimate requirement to replace the costly batteries – with fixed battery EVs.

Subsidies and incentives

Having said all of the above, it is important to note that the EV industry is still very nascent, especially when compared to the ICE vehicle industry and its associated infrastructure comprising fuel stations, service centres, that has had over a century to mature to where it is today.

A substantial policy framework will also serve as the base for innovation and growth. There are a few approaches that could be considered to create a positive and holistic long-term effect on the electric mobility industry in India. As subsides are not a long term solution, the first step in this direction begins from ending any sort of bias that favours one battery charging solution/form factor over the other at a time when the entire EV ecosystem is still extremely nascent.

Ending the differentiation

As of today, the EV policy in India distinguishes between EVs with fixed batteries and those that are fitted with swappable ones, with the former benefiting from lower taxes. For example, if a battery is sold along with the EV, essentially a fixed battery vehicle, it attracts 5 percent GST, while a standalone swappable battery attracts 18 percent GST. This difference of a hefty 13 percent significantly increases the purchase cost by a large margin which will ultimately be borne by the consumer.

Focus on subsidies

Fixed-battery EVs receive more central and state government subsidies than EVs with swappable batteries which is stifling innovation and restricting further development of the latter. In fact, pursuant to the Union Budget of 2022, the NITI Ayog released a draft policy for battery swapping that advocated the creation of a level playing field for both fixed and swappable battery powered EVs. Once rolled out, the policy would enable the uniform dispersion of subsidies and incentives as per the kWh rating of the battery unit, regardless of fixed or swappable, with adequate multipliers for battery providers that offer ‘Battery as a Service’ (BaaS) in their respective stations.

This policy, however, awaits implementation, and the distinct disparity between the two EV battery recharging solutions continues to exist.

Despite the bevy of subsidies available for fixed battery EVs, they still cost significantly more than battery swappable versions of the same model. We have already seen customers choosing battery swappable EVs over those with other solutions simply because of the significantly lower purchase and operating costs as compared to those with fixed batteries. Besides, these incentives will not run forever, and when removed, will cause the price gap between fixed and battery swappable EVs to widen even further.

EV technologies and charging solutions must be treated on a par with each other so that a level playing field is created and only the most efficient, sustainable, cost-efficient, and viable solutions would develop to ensure seamless, widespread adoption of electric mobility. Further, this will also provide technology agnostic options to consumers to decide depending on their needs.

Way forward

Today, battery swapping is an ideal solution for a variety of commercial applications such as bikes, 3w passenger vehicles, and loaders, which form approximately around 80 percent of the vehicles on our roads. Not only are they large in numbers, but they also form the backbone of the urban economy, enabling last-mile delivery with ease.

An effective Battery Swapping Policy, in addition to the calibration of other existing regulatory catalysts and incentives to function without bias towards any particular recharging solution, will support India in its journey to reach its green targets.