Strategy

STRATEGY INSIGHT December 22, 2017

E-mobility in India- where are we?

In our 27 Jul’17 note we had opined that the Electric Vehicle (EV)
adoption in India is likely to start with three wheelers and fleet services
(taxis, buses, cab aggregators). Since then, the Indian EV ecosystem has
seen a number of developments, with Government entities like EESL
and NTPC acting as a pioneer (and enabler) by giving out tenders to
procure EVs and setting up charging stations. However, basis our
interactions with experts, we realized that a number of challenges still
plague both private sector participation and active adoption by the end-
consumer. Specifically, investors are advised to pay particular attention
to much needed amendment in Electricity Act, 2003 to remove charging
stations from distribution licensee restriction and steps taken towards
indigenous battery manufacturing at scale
Vehicles – 2 and 3 wheelers to lead EV adoption
High acquisition cost is one of the major factors impeding EV adoption in India.
Even though a number of international auto majors have announced plans for
future EV rollout (by 2019), consumers today have to remain content with the
limited range offered by the current options in four wheelers. Two wheelers
however offer sufficient range and are likely to lead the adoption in India
mainly as a lifestyle product. Three wheelers, too, given their commercial
viability in last mile connectivity are already seeing a pick-up in adoption.
Electric bus adoption is mainly dependent on STUs and initial rollouts have
begun in Himachal Pradesh and Mumbai.
Changing infrastructure - private sector participation lags
Lack of adequate charging infrastructure availability has been highlighted as a
key barrier to wider adoption of EV adoption in India. Given the chicken and
egg problem associated with EV adoption and charging infrastructure, public
entities like EESL have stepped up their efforts as enablers and decided to set up
almost 4000 captive charging stations in India at Government offices (over the
next 18 months). For private players, currently, two business models are
available in the market to offer advanced EV charging business solution: cloud
service and turn-key solution. While the cloud service provides business
software for operating any smart charging network, the turn-key solution offers
end-to-end charging solutions for B2B and B2C users.
Batteries- Battery swapping suitable only for 2/3 wheelers
With batteries accounting from anywhere between 30-40% of the electric
vehicles cost, high costs of imported Lithium ion batteries have been a major
impediment to reduction of acquisition cost of EVs in India. With regards to
local production, one major point of confusion amongst the industry players
seems to be the battery chemistry suitable for India. Also, standardization which
is an important aspect of manufacturing batteries at scale, looks unlikely given
battery performance is a major USP for any OEM. Battery swapping which is
touted as an alternative to charging stations has logistical issues for heavier
vehicles making it a suitable option only for two and three wheelers.
Policy and regulations - Electricity Act amendment critical
The biggest impediment in the development of charging infrastructure is that
the Electricity Act, 2003 does not allow anyone other than distribution licensee
to sell electricity. This means only a discom can set up a charging station and
commercial entities like shopping malls/offices are unable to provide their
Research Analyst
customers/employees option of charging cars while they shop/work. While the
Government has not given clear indication towards amending the Electricity Act Prashant Mittal, CFA
as desired, an idea being considered is assigning the status of ‘Deemed prashant.mittal@ambit.co
licensee’ to the charging station owner. In this case, the charging station Tel: +91 22 3043 3218
providers buy directly from generators rather than discoms to reduce costs.
analyst@carepms.com
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
 Strategy

E-mobility in India – A recap

Expected evolution of EV ecosystem in India
In our 27 Jul’17 dated note, ‘India’s Bermuda Triangle’, we laid down our
understanding of the way in which the Indian ecosystem w.r.t. E-mobility and
renewables adoption is going to evolve. Since then the media and investors alike
have seen an increasing interest in the space leading to a number of stocks seeing a
sharp run-up and being touted as the next multi-baggers on the back of this
disruptive theme. As is the case with any new disruption, the projections for the future
are based on certain critical assumptions about consumer behavior and industry
participation. While one can superimpose the learning of one geography to the other
so as to gauge the pace of adoption, doing this is fraught with risks considering the
unique dynamics specific to any particular region or country.
In this note, we aim to highlight our key takeaways from various industry participants Over the last five months the
with regards to what’s happening on the ground in India from the E-mobility media and investors alike have
perspective at present. Firstly, given below is a snapshot of how we saw the seen an increasing interest in the
ecosystem evolving in India in our 27 Jul’17 dated note ‘India’s Bermuda Triangle’. EV space
Exhibit 1: Timeline for EV adoption in India
Present By 2020 (next 3 years) 2020-2022 (next 3-5 years) After 2022
Electric fleet transport for 3W
2W and 3W are most 3Ws and buses begin adopting EV Electric fleet transport becomes
Fleet transport and buses gains market share
popular EV products platform meaningful in 3W and buses
from diesel
No presence of EV in cab Savings in EV platform become EV replaces CNG as preferred EV are 50%+ of total
Cab aggregators
aggregators visible and proven platform for cab aggregators population
M&M, Maruti, Toyota are M&M continues push towards EV GM, Nissan adapt global EV
OEMs Maruti develops EV platform
the only OEMs with EV cars cabs platform for India
Battery costs are very high, Battery costs fall below
Battery costs Battery costs fall to US$150/kwh Battery costs fall to US$100/kwh
US$200/kwh US$100/kwh
Battery swapping network covers Battery swapping is accepted
Battery Swapping No battery swapping Battery swapping gets acceptance
Metros and Tier 1/2 cities practice
Charging Weak charging Charging infrastructure improves Charging infrastructure improves Charging structure covers all
infrastructure infrastructure in metros in Tier 1 cities metros and Tier 1 cities
Aggressive targets but no Government formulates EV policy States provide meaningful benefits Centre and States have
Government efforts
specific policy for EV and charging standards for EV adoption significant support for EV
Source: News reports, Ambit Capital research Note: Exhibit reproduced from our 27 Jul’17 dated note ‘India’s Bermuda Triangle’ without changes

The current scenario and challenges

In a nutshell, the challenges facing the e-mobility ecosystem in India can be EV ecosystem in India faces multi-
summarized as presented in the table below: faceted challenges
Exhibit 2: Challenges facing the EV ecosystem in India
Area Challenges
Higher acquisition cost of EV than ICE vehicles
Vehicles Limited range/charge of just 100-150 kms
Lack of models at different price points lowers the flexibility to choose
Lack of adequate public charging stations a barrier to adoption
Charging
Lack of clarity on business model
Infrastructure
Lack of proper studies to identify best practices to deploy charging stations basis geography, population density traffic patterns etc.
High cost of LIBs vs. other battery types like Lead acid makes its wider adoption difficult in spite of better efficiency and performance
Batteries
Lack of movement towards standardization of batteries which is critical for battery swapping stations
Electricity Act prohibits sale of electricity by companies other than distribution licensee hence EV charging currently falls under purview of
Policy and
distribution businesses
regulations
Lack of indigenous R&D and manufacturing leads to imports which raises overall cost of batteries and other EV components.
Source: Ambit Capital Research

In the ensuing sections, we delve into the current scenario with respect to the
challenges facing each of the critical areas listed above.

analyst@carepms.com

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Vehicles – 2&3 wheelers to lead adoption

High acquisition cost and limited range main impediments for 4-wheeler EV
demand
We had highlighted high capital cost as one of the major factors impeding the EV
adoption in India in our 27 Jul’17 dated note ‘India’s Bermuda Triangle’. Specifically,
we had highlighted this quote1 made by Maruti Suzuki Managing Director (MD),
Kenichi Ayukawa when asked how prepared Maruti is to roll out EVs:
“Electric technology is there with (Japanese parent) Suzuki. There is a lack of good and
affordable electric solutions; low cost is not easy to find. We need charging points for
electric vehicles. We have to review these practical problems. We need a road map for
the future. You can import cars from a company like Tesla but people are not looking
for such options. People expect an affordable vehicle; else, they will not opt for
it. They look to buy electric cars in a price range of Rs 5-10 lakh. We have to study EV passenger vehicle owners have
options in this range. At this moment, a limited solution is available.” [Emphasis ours] to remain content with the limited
range offered by the current
At present, even though a number of international auto majors including Nissan, options
Volvo, Suzuki, Toyota and Tesla have announced plans to enter the Indian Electric
four-wheeler market, the rollouts are expected to happen only post mid-2018.
Consequently, M&M is currently the only listed automobile player with a meaningful
exposure to EVs through its three models - the e2o which is an upgraded version of
the Reva, the Verito is an EV sedan, and the eSupro cargo/passenger van. As a result,
the EV passenger vehicle owners have to remain content with the limited range
offered by the current options (including the recently launched Tata Tigor EV for EESL2
which also has a range of 120-150 kms). Cab aggregators, however, on account of
higher miles run (and hence earlier breakeven) would be much earlier adopters than
passenger cars.
Two wheelers likely to see faster adoption mainly as a lifestyle product
Two wheelers though are expected to outpace four-wheelers in India’s ambitious
drive towards all-electric mobility, as: a) the range offered for the two wheelers in the
vicinity of 60-100 kms suffices the consumer needs and b) all top scooter and
motorcycle manufacturers have lined up their clean-energy products for launch
starting next year. Hero MotoCorp, Honda Motorcycle & Scooter India, TVS, Mahindra
Two Wheelers, Yamaha and Bajaj Auto, all have scheduled launches of electric two-
wheelers from 2018. The likes of Hero Electric and Electrotherm have been in fact
selling electric scooters in India for several years now and some 4,50,000 electric
two-wheelers were sold in India in the past eight years. However, the initial adoption
is likely to be driven by the lifestyle/luxury segment with products aimed at Initial adoption is likely to be
environment-conscious, higher-end customers willing to pay for a premium product. driven by the lifestyle/luxury
Ather Energy (30% owned by Hero Moto) is developing a “smart” electric scooter, segment with products aimed at
named the S340 at a reported3 price tag of Rs100,000. Similarly, Tork Motorcycle’s environment-conscious, higher-end
T6X performance motorcycle is reportedly4 priced at Rs125,000. customers
Adoption of electric three wheelers makes economic sense for commercial
use
Alongside the two wheelers, the three-wheelers (3W), or ‘rickshaws’ are expected to
switch to electric platforms faster than other segments of the automobile sector,
especially given that most of them ply in commercial capacity. Rickshaws are ideal for
short commutes (from villages to town, between suburbs in cities, from homes till the
nearest rail/metro station, etc.) and fill in gaps created by poor public transport.
There are already many e-rickshaws in India, especially in Delhi. However, these are
cheap, unbranded, and unregulated vehicles with poor efficiencies compared to a
LIB-powered e-rickshaw. The attraction of this space has brought in a number of
established players including the likes of M&M, Scooters India, Bajaj Auto, Atul Auto
1
http://www.business-standard.com/article/companies/q-a-kenichi-ayukawa-managing-director-maruti-suzuki-
india-unless-affordable-people-will-not-opt-for-electric-cars-117071101012_1.html
2
http://www.cartoq.com/renault-captur-vs-hyundai-creta-which-suv-offers-what/
3
http://www.moneycontrol.com/news/business/startup/athers-electric-scooter-to-cost-around-rs-1-lakh-launch-
expected-in-2018-2309511.html
4
http://www.thehindubusinessline.com/specials/auto-focus/tork-t6x-going-electric-never-looked-this-
analyst@carepms.com
good/article9193406.ece

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and startups like Kinetic Green and Gayam Motor Works. Incidentally, Kinetic Green
in collaboration with aggregator Smart-E, will roll out a batch of 500 vehicles in
Gurgaon in collaboration with Delhi Metro Rail, HSIIDC and Rapid Metro Gurgaon to
provide last mile connectivity to commuters. In the coming months, this service will be
rolled out in multiple cities across the country. To reduce the total cost of ownership
of these Li-ion three wheelers which cost upwards of Rs 2Lakh to acquire, Power Grid
(PGCIL) is planning to set up battery swapping infrastructure at the Delhi Metro
stations. The battery swap will take an estimated 3-4 minutes and the cost to the PGCIL is planning to set up battery
auto driver will be about Rs1.5/km. Given typical last mile connectivity trip length of swapping infra for 3 wheelers in
about 5-6 kms it translates into a cost of roughly Rs8-9/trip. Delhi

Electric buses already seeing traction in Mumbai and Himachal

In electric buses, even though local manufacturers like Ashok Leyland and Tata
Motors have expressed interest and performed pilot runs , BYD from China (in
partnership with Goldstone Infratech Ltd) has been able to secure contracts from
STUs of Himachal Pradesh5 and Mumbai. STUs of Delhi, Chandigarh, Bengaluru,
Hyderabad and Rajkot are undertaking trial runs at present. The electric buses
require 3-4 hours to charge and can run for 200 km at a stretch. Each bus costs
Rs16.1 mn, more than double the price of regular buses.
Exhibit 3: BYD in partnership with Goldstone Infratech Exhibit 4: … and in Himachal Pradesh
launched electric bus in Mumbai…

Source: NDTV, Ambit Capital Research Source: AutoPortal.com, Ambit Capital Research

5
http://www.thehindubusinessline.com/news/national/goldstone-electric-buses-flagged-off-by-hp-transport-
corporation/article9868484.ece
analyst@carepms.com

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Charging Infrastructure – private sector

participation lags
Lack of adequate charging infrastructure availability has been highlighted
as a key barrier to wider adoption of EV adoption in India apart from high
acquisition cost and limited range currently offered by models available in
India. Our discussions with experts suggest that both the industry and the
Government are cognizant of this issue and both the parties are
enthusiastically devising ways to overcome this impediment. Before we dive
into the current scenario w.r.t charging infrastructure in India, we take a look
at some of the key technical aspects associated with various kinds of Charging stations can broadly be
charging stations. classified into three categories- AC
Level 1 (120V), AC Level 2 (240V)
Charging stations can be broadly classified into 3 categories
and DC fast charger
Charging stations can broadly be classified into three categories (using global
benchmarks) as shown in the table below:
Exhibit 5: Different types of charging stations
Level One (120 Volts) Level Two (240 Volts) DC Fast Charging (3 phase)
Level 1 charging uses the same 120-volt current Level 2 charging uses 240 volt power to DC fast charging provides compatible vehicles
found in standard household outlets and can be enable faster regeneration of an EV’s battery with an 80 percent charge in 20-30 minutes by
performed using the power cord and equipment system. Providing this type of charging requires converting high voltage AC power to DC power
that most EVs come with. All electric cars have installation of an Electric Vehicle Supply for direct storage in EV batteries. However,
what is termed an “on-board charger” in the car Equipment (EVSE) unit and electrical wiring automakers currently have two competing
itself. So, all you need is to use the charging cord capable of handling higher voltage power. specifications for DC fast charging plugs, the
you get with your car to connect your car to a CHAdeMO and SAE Combo standards. Nissan
source of electricity. and Mitsubishi vehicles use CHAdeMO while
upcoming vehicles from U.S. and European
manufacturers are planned to have SAE Combo
ports.
Advantages Advantages Advantages
 Low installation costs  Charge time is significantly faster than  Charge time is reduced drastically. It’s
 Low impact on peak demand charges Level 1 (EVs will get between 10 and 20 nearly as fast as refueling a gasoline
Disadvantages miles of range per hour of charge) vehicle
 Charge time is slow (EVs will get around 3 or  Significantly more energy efficient than Disadvantages
5 miles of range per hour of charge) Level 1 for short charge events (around an  Equipment and installation costs are much
hour or less) higher than level 1 and level 2 charging
Disadvantages ($20,000- $100,000 depending on
 Installation costs are higher than Level 1 equipment and power availability at site)
(as much as $5,000 for a commercial  Increased peak demand charges
installation not including the cost of  Competing standards are confusing to
equipment) potential EV buyers and charging station
 Potentially higher impact on peak operators
demand charges  Potential issues with cold weather
operation
Suitable for home/office Suitable for home/office/commercial setup Suitable only for commercial set-up

Source: Plugmyride.org, evobsession.com, Ambit Capital research

Speed of charging varies with the level of charging

For the clients interested in more technical details, it might help to notice that no
matter what type of charger you use or what kind of car you have, the speed of
charging is never the same at 1% of charge as it is at 99% of charge. Basically, when
your battery is closer to empty, electricity can flow in at a rapid pace. As it gets filled
up, though, that rate must slow. This is called “tapering,” and you’ll notice it
beginning at around 50% of charge, but it gets really strong above ~80%. Generally
speaking, for this reason, unless you really need to fill up to 99% or 100%, it’s
advised that you just go to 80% and then go on your way — and some charging
stations actually cut your charge off at 80%.
Also, note that Tesla Supercharging is often referred to as “level 4 charging”, since it Tesla Supercharging is often
is much faster than DC (level 3) charging. At the moment, only Teslas can use the referred to as “level 4 charging”,
Tesla Supercharger network. Superchargers are installed widely across the US (and since it is much faster than DC
Europe) and can charge an electric car faster than any other chargers out there. Tesla (level 3) charging
is quickly growing the Supercharger network, and this creates one large competitive
advantage for the popular EV company. At the moment, Tesla Superchargers have a
analyst@carepms.com

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max power output of 120 kW as compared to 50kW for SAE Combo and CHAdeMO
fast chargers.
The table below showcases the fully electric cars in the market which can utilize fast
chargers, which types of fast chargers they can use, and approximately how many
miles of charge/range can be added in 30 minutes of charging:
Exhibit 6: EV models and the kind of fast chargers they use
Standard or As Miles of Charge in
Model Fast Charger Type
An Option ~30 Minutes
BMW i3 SAE Combo Standard 75–100
Chevy Spark EV SAE Combo Option 75–100
Kia Soul EV CHAdeMO Standard 75–100
Mitsubishi i-MiEV CHAdeMO Standard 75–100
Nissan LEAF CHAdeMO Option 75–100
Tesla Model S Supercharger & CHAdeMO Standard / Option 170
Tesla Model X Supercharger & CHAdeMO Standard / Option 170
Volkswagen e-Golf SAE Combo Standard 75–100
Source: evobsession.com, Ambit Capital Research

Two business models are available in the market that offer advanced EV Currently, two business models are
charging business solution available in the market that offer
Now, turning back to the Indian scenario at present, to facilitate e-mobility in the advanced EV charging business
country, the industry has to meet the customers’ expectations and adapt to their solution: cloud service and turn-key
charging needs. Key considerations while setting up a charging station include solution
location, price, time, mode of charging (AC/DC) and safety and security. Currently,
two business models are available in the market that offers advanced EV charging
business solution: cloud service and turn-key solution. While the cloud service
provides business software for operating any smart charging network, the turn-key
solution offers comprehensive charging solutions for B2B and B2C users. In simple
terms what turnkey solutions means is providing end to end service from assessment
of the viability of the charging station setup to equipment design, procurement,
installation and establishing the network of chargers.
In order to optimize the charging duration, use of mobile apps and intuitive user
interface can be deployed to allow the consumers to know the status of a charging
point on a real time basis and track the charging station in advance. Fortum - a
Nordic company is the leading electricity retailer and charge point operator (CPO) in
the Nordics, and their cloud-based software is used to operate charging networks
worldwide. Their cloud solution is hardware-agnostic and supports multiple hardware
manufacturers. It allows operators to remain in control of their network and charging
points, regardless of which hardware (OEM) is in use. Further, given consumers want Fortum’s user interface clubs real
real time data about charging station availability and its detailed location, Fortum’s time data on charging stations
user interface that clubs this aspect with flexible payment options (per minute/ per availability with flexible payment
Kwh or via app payment, RFID authorization, SMS) provides a benchmark solution options
that can be adopted to simplify end user EV adoption. They’ve been present in India
since 2012 and signed an MoU recently with NBCC to develop EV charging
infrastructure across India6.

6
https://energy.economictimes.indiatimes.com/news/power/fortum-nbcc-agree-on-developing-e-vehicle-
charging-infrastructure-across-india/60956154
analyst@carepms.com

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Exhibit 7: Fortum’s user friendly app to determine charging station availability

Source: Fortum

Government is taking lead in setting charging infrastructure through EESL

While private players like Fortum form an important part of the charging ecosystem,
the need for public infrastructure set up by the Government cannot be overlooked.
Given the chicken and egg problem associated with EV adoption and charging
infrastructure, public entities need to step in as enablers and provide the necessary Energy Efficiency Services Limited
impetus to the vision set up by the Government. In fact, this is a model being (EESL) in partnership with NTPC
advocated in Germany too7. It is with this vision that Energy Efficiency Services Limited has decided to set up almost 4000
(EESL) in partnership with NTPC has decided to set up almost 4000 captive charging captive charging station in India at
station in India at Government offices (over next 18 months). This is in addition to the Government offices
EV procurement plan laid out by it that aims to replace about 500000 Government
cars with EVs over the 3-4 year period, with no extra cost for the Government offices.
Currently the EESL is procuring electric vehicles basis its first tender of 10000 cars, the
first phase of which is being completed by Tata Motors and M&M. EESL also plans to
roll out another tender of 10000 cars by April’188. Notably, EESL is playing a similar
‘demand aggregation’ role played by the six states (California, Minnesota, Montana,
Rhode island, Washington, Vermont) in the US for expediting the EV adoption
through federal agencies’ initial order placement9.
Indian charging standards recommend variable pricing structure
Coming to the question of charging standard in India at present, w.r.t. Bharat EV
charger Specifications10, India’s Ministry of Heavy Industries has adopted
recommendations for the implementation of national standards for electric vehicle
charging stations — Bharat EV Charger AC-001 and Bharat EV Charger DC-001. The
Ministry first issued draft protocols for national standards for AC and DC charging
stations in March 2017, which was later released for stakeholder comments. Notably,
the draft protocol did not venture into the use of private chargers (installed at homes)
and restricted itself to the use of public chargers. The protocol indicates a variable
Indian automobile manufacturers
price for charging EVs from public chargers depending on the supply-demand
are unlikely to provide AC chargers
scenario of the grid at a particular instant. The draft laid out that Indian automobile
of more than 3 kW capacity due to
manufacturers are unlikely to provide AC chargers of more than 3 kW capacity due to
cost constraints.
cost constraints. For such chargers, a charging point of 230 V single phase would be
required, which can fully charge a 2-wheeler in an hour and a 4-wheeler, with
batteries of 12 kWh or more, in five to six hours.

7
http://nationale-plattform-
elektromobilitaet.de/fileadmin/user_upload/Redaktion/AG3_Statusbericht_LIS_2015_engl_klein_bf.pdf
8
http://www.livemint.com/Industry/ZsbtjLa3A7EUobW8qDj9uK/EESL-to-float-tender-for-10000-additional-
electric-vehicles.html
9
https://br.usembassy.gov/obama-administration-announces-new-actions-accelerate-deployment-electric-
vehicles-charging-infrastructure/
10 analyst@carepms.com
http://dhi.nic.in/writereaddata/UploadFile/Standardization%20of%20protocol.pdf

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Also, the protocol discusses two types of DC chargers — Level 1 and Level 2. Level 1
chargers can have a voltage output of 48/72 V with power outputs of 10 kW or 15
kW. Higher capacity DC chargers (Level 2) can have voltage output of 1000 V and
power output of 30 kW or 150 kW. The draft further discussed how the charging
stations will communicate with the power supplier and how the vehicle owner would
be billed and payments made. Multiple options were discussed including debiting the
user’s account based on VIN (vehicle identification number), using a mobile app like
BHIM or Bharat QR code or other digital payment schemes specified by Indian
Government.
Note that every car has onboard AC/DC converter and OEMs currently decide the Currently for cars manufactured in
make basis size/cost limitations. Our discussions with experts suggest that currently India the support is only for AC
for cars manufactured in India the support is only for AC level 1 charging, which level 1 charging- which takes
takes anywhere between 8-10 hours to fully charge. Also w.r.t. payment options, pay anywhere between 8-10 hours to
per use option is not available in India currently as the charging infrastructure does fully charge.
not support swiping of cards. Currently, it is RFID based or pre-paid based
mechanism.

analyst@carepms.com

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Batteries – Battery swapping suitable only

for 2/3 wheelers
Battery makers confused about the chemistry suitable for India
With batteries accounting from anywhere between 30-40% of the electric vehicles High costs of imported Lithium ion
cost, high costs of imported Lithium ion batteries has been a major impediment batteries has been a major
towards reduction of acquisition cost of EVs in India. Currently, Indian companies impediment towards reduction of
import Li-Ion cells from China or Japan and assemble battery packs in India. Niti acquisition cost of EVs in India
Aayog has been quite vocal about the necessity of having indigenous battery
manufacturing units in India to reduce the costs and estimated the opportunity to be
worth as much as $300 billion. While the move towards e-mobility in India has led to
a number of companies (including Suzuki, Toshiba, Denso, JWS Energy, Reliance and
BHEL) showing interest in developing indigenous battery manufacturing units, given
the amount of capex and set-up time required, we’re still long way from achieving
enough scale on this front. The one major point of confusion amongst the industry
players seems to be the battery chemistry suitable for India. While countries like
China started their EV adoption with the Lithium-iron-phosphate (LFP) chemistry on
the back of its longer life cycle, stability and cheaper cost, world over now the Nickel- One major point of confusion
Manganese-Cobalt (NMC) battery is finding more acceptance11. amongst the industry players seems
However, it’s encouraging to see initial signs of local sourcing being used by OEMs to be the battery chemistry suitable
such as Clean Motion – a Sweden-based electric three wheeler maker which has for India
announced plans to source lithium-ion batteries from a local supplier Exicom Power
Solutions12.
Exhibit 8: The world’s lithium reserves far exceed… Exhibit 9: … the current production levels

Total Lithium reserves - 14.5mn MT Total Lithium production - 35k MT

Portugal Brazil US Zimbabwe Portugal
1% 0% 0% Zimbabwe China 2% 1%
Australia Brazil
0% 6% 1%
11%
Argentina Argentina
14% 16%
Australia
Chile 40%
China 52% Chile
22%
34%

Source: www.statistica.com, Ambit Capital Research Source: Investing News , Ambit Capital Research Note: The production for
US was not disclosed by US Geological Survey

Standardization of batteries unlikely; Cobalt likely to be replaced with Nickel

Another critical aspect with respect
Also, another critical aspect with respect to achieving scale is standardization of to achieving scale is
batteries. Our discussions with experts on this matter suggest that this is highly standardization of batteries.
unlikely to happen anytime soon as in case of LIBs (and unlike lead acid batteries)
auto OEMs showcase EV battery as a major USP (as it directly affects vehicle
performance). So there is low chance of standardizing something that is a very strong
selling point for you.
With respect to raw material availability, industry players are of the belief that Lithium
supply concerns are overblown. As we’ve shown in the charts above as well, current
production of Lithium far exceeds the determined reserves worldwide. Cobalt is much Standardization unlikely to happen
more critical raw material as its supply is mainly restricted to Democratic Republic of
as EV battery is a major USP for
Congo which accounts for more than 50% of world’s supply. The political instability of
OEMs
the region and case of human rights violation w.r.t. child labor make it a risky
investment. As a result, battery makers are looking to reduce cobalt content and
increase nickel content in batteries13.

11
https://www.reuters.com/article/us-southkorea-battery-cobalt/asian-battery-makers-eye-nickel-top-up-as-
cobalt-price-bites-idUSKBN1AJ0S8
12
http://indiaesa.info/iesa-industry-news/1020-clean-motion-to-source-local-lithium-ion-batteries-for-its-e-auto-
rickshaws-to-bag-sri-lankan-order-in-jan
13
https://www.reuters.com/article/us-southkorea-battery-cobalt/asian-battery-makers-eye-nickel-top-up-as-
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Challenges with battery swapping make it suitable only for 2/3 wheelers Battery makers are looking to
The discussion on battery ecosystem will not be complete without discussing the much reduce cobalt content and increase
documented case of ‘battery swapping’ infrastructure. Chetan Maini of the Reva nickel content in batteries
fame, one of the most prominent proponents of this technology, started Sun Mobility
to offer battery swapping services, banking on the immense opportunity provided by
the Government’s 2030 vision of electrifying transport in India. However, Indian
Road Transport And Highways Minister Nitin Gadkari has publicly deemed it as an
unviable solution.
“The battery swapping policy I feel is not appropriate for the country because it is a
very difficult thing”
- Nitin Gadkari at the Smart Mobility Conference organised by industry association
FICCI on 20 Nov’17
In a nutshell, the positives associated with battery swapping are:
 Quick charging: Battery swapping typically takes less than 5 minutes and is
comparable to refueling at a gasoline station for the Internal Combustion Engine
(CE) vehicles.
 Lower acquisition cost: Under battery swapping the consumer doesn’t need to
buy battery with the vehicle as u can lease the battery for use. Given battery is
30-40% of the vehicle cost, it reduces the upfront cost for consumer. Battery swapping allows quicker
refueling, lower acquisition cost
 Grid management: The battery swap provider can decide to charge (at a
and better grid management
centralised location) at the most appropriate time when demand is low, thus
reducing peak demand from the grid and concurrently the costs associated with
charging.
However, there are quite a few roadblocks to its adoption, namely:
 Standardized EV Lithium Ion Battery Packs: It is something that has not
happened globally so far and its implementation in India may be questionable
with majority of the auto OEMs preferring to control their design strategies for
battery packs as their core technology USP.
 Commercially Viable Business Models: While the Government subsidies in the
initial phase are welcome, it is extremely important to have a very sound and
commercially viable business model to ensure aggressive industry participation.
 Reliability of Leased/Rented Battery Packs: It appears to be a case more
specific to India. It is of utmost importance that users should get a fully-charged
and reliable battery pack every time they swap. It is really difficult for a common
user to understand the performance related nuances and any potential breach
may lead to a serious disaster of swapping business and can create larger
controversies as well.
 Incentives: Under goods and service tax regime, while electric vehicles sold with However unlikelihood of
batteries are charged 12 percent GST, batteries alone are sold at 28 percent, standardization, lack of business
making swapping further unviable. model, high tax rates and logistical
constraints make it unviable
 Logistics: While battery swapping might be possible for two and three wheelers,
proposition for bigger vehicles
it is not feasible logistically for buses and cars (230 kg) given the weight of
batteries. Also, current ideas around gas stations housing battery swap kiosks are
impractical given LIBs are highly inflammable. Transportation of batteries to and
from central warehouses to kiosks too is a challenge given this needs to happen
when batteries are in discharged mode to prevent any mishap.
The pros and cons of battery swapping suggest that this technology is likely to make
inroads only for two and three wheelers in India (in fact as highlighted in earlier
section Power Grid is already running a pilot to provide battery swapping for electric
three wheelers at Delhi metro stations), while bigger vehicles (cars and buses) will
rely on charging stations.

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Policy and Regulations – Amendment to

Electricity Act critical
Electricity Act amendment critical to encourage private sector participation in
charging infrastructure
According to the private players, the biggest impediment in the development of Electricity Act, 2003 does not allow
charging infrastructure is that the Electricity Act, 2003 that does not allow anyone,
anyone, other than distribution
other than distribution licensee to sell electricity. The Electricity Amendment Bill was
licensee to sell electricity allowing
introduced in the Lok Sabha in December 2014, and has been pending there since
only a discom to set up a charging
then. Given that current amendment does not include a provision to allow a non-
station.
discom to sell power, the Government will have to introduce changes to the proposed
amendment to allow retailing of power by e-vehicle charging.
The current regulations only allow the charging station to effectively act as an
intermediary between the discom (distribution company) and the e-vehicle owner and
at the moment, no one apart from a discom can own power. This means only a
discom can set up a charging station.
The amendment to the act is important considering that unlike battery swapping
Government is keen to either adopt
infra, electricity as a starting point for setting up charging stations is ubiquitous (at
a discom owned or franchisee
least in bigger cities). Industry players suggest that in spite of this, as a result of this
model
regulatory hurdle, they are unable to install widely present charging points. For
instance, shopping malls and offices CANNOT sell electricity and hence such
commercial entities are unable to provide their customers/employees option of
charging cars while they shop/work.
Unlike the private players which demand classification of charging stations as a ‘sale
of service’ not requiring distribution licence, the Government is keen to either adopt a
discom owned or franchisee model. Under the franchisee model, the discom owns
the charging stations but someone else operates it (given discom owns the station, Another idea on table is giving
the hurdle of distribution licence is removed). Another possible idea on the table is ‘Deemed licensee’ status to
assigning the status of ‘Deemed licensee’ to the charging station owner. In this case, charging station owners allowing
the charging station providers buy directly from generators rather than discoms to them to buy directly from
reduce costs. generators
Government toying with the idea of a feebate policy as well
The Government (through NITI Aayog) is also toying with the idea of introducing a
feebate policy14. A feebate is a market-based policy combining fees with rebates to
reward energy-efficient or environmentally friendly investments or practices and
penalize inefficient and environmentally harmful ones. According to NITI Aayog, a
feebate represents a simple, elegant solution capable of shifting consumers’
preferences and manufacturers’ offerings in a way that creates value for both parties
as well as society.
Pressure on grid likely to increase as a result of regulatory restrictions on Government toying with idea of
sale of electricity feebates as well to reward energy-
efficient or environmentally friendly
With respect to incremental pressure on the grid due to charging of EVs, the industry
investments
is of the view that as a result of regulatory restrictions around sale of electricity by
entities other than discoms, the demand during peak hours, especially in the evening,
is likely to see further uptick. This is explained in the following way: as can be seen in
the chart below by National Load Dispatch Centre (NLDC) (which assumes demand
growth of 8% and solar infusion of 20,000 MW by 2022), the demand is likely to see
a sharp uptick in evening hours after reaching a trough during daylight hours (due to
solar power integration). In case customers choose to charge their vehicles at home
after returning from work instead of at office/shopping malls the demand during
evening hours is likely to increase further. This will then not only demand higher
capacity from the grid, but would also result in higher cost for customers as they
charge vehicles during peak hours. Such a scenario can prove to be a major
detriment to EV adoption.

14
http://niti.gov.in/writereaddata/files/document_publication/Valuing_Society_First_Feebates_Policy.pdf
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 Strategy

To address this issue, it’s important to nudge customers towards charging vehicles Regulatory restrictions around sale
during off peak hours during the daytime when their cars are parked at offices or of electricity likely to increase peak
other commercial setups. These commercial setups in turn need to be allowed to sell demand from grid around evening
electricity as a service – something that needs amendment of the Electricity Act, 2003. hours
Such an amendment would allow optimum use of solar power integration in the grid
for EV charging purposes till the time static renewable energy storage in batteries to
complement the grid gains scale.
Exhibit 10: The Indian Duck curve

Source: NLDC

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 Strategy

Conclusion – Electricity Act amendment and

local battery sourcing are critical
We started the note by asking the question about current scenario with respect to the
EV adoption in Indian landscape and listed the current challenges facing various
facets of the EV ecosystem. While each of the facets has its own set of issues, some
are more critical than the others. We feel that an amendment to Electricity Act of
2003 is one of the most critical problems to solve to kick-start the wider installation of
charging infrastructure and resultantly EV adoption in India. Concurrently, the
Government in collaboration with industry needs to invest in both indigenous battery
manufacturing as well as battery swapping infrastructure in India so as to make the
first phase of EV adoption – namely two and three wheelers gain scale. As the
charging infrastructure improves in India and battery costs come down (both because
technology improves globally and local sourcing gains pace), OEMs will be
incentivized to introduce cheaper vehicles. While it is not such a big pain point for
public transport (taxis, buses) adoption (given the earlier breakeven from higher miles
covered vs. passenger vehicles), cheaper vehicles combined with reduced range
anxiety is likely to spur the initial adoption by passenger segment as well. All said, EV
adoption at a wider scale will need a larger behavioral change for the end-consumer,
something that will need both adequate support infrastructure in place and
educational awareness of benefits to shifting to an electric vehicle.

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 Strategy

Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Ambit Capital Private Limited (022) 30433174 saurabh.mukherjea@ambit.co
Pramod Gubbi, CFA Head of Equities (022) 30433124 pramod.gubbi@ambit.co
Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research E&C / Infra / Cement / Home Building (022) 30433241 nitin.bhasin@ambit.co
Aadesh Mehta, CFA Banking / Financial Services (022) 30433239 aadesh.mehta@ambit.co
Abhishek Ranganathan, CFA Retail / Consumer Discretionary (022) 30433085 abhishek.r@ambit.co
Aditi Singh Economy / Strategy (022) 30433284 aditi.singh@ambit.co
Anuj Bansal Consumer (022) 30433122 anuj.bansal@ambit.co
Ariha Doshi Consumer (022) 30433228 ariha.doshi@ambit.co
Bhargav Buddhadev Power Utilities / Capital Goods / Small Caps (022) 30433252 bhargav.buddhadev@ambit.co
Deep Shah Media / Telecom (022) 30433064 deep.shah@ambit.co
Gaurav Khandelwal, CFA Oil & Gas (022) 30433132 gaurav.khandelwal@ambit.co
Gaurav Kochar Banking / Financial Services (022) 30433246 gaurav.kochar@ambit.co
Girisha Saraf Home Building (022) 30433211 girisha.saraf@ambit.co
Karan Khanna, CFA Strategy / Small Caps (022) 30433251 karan.khanna@ambit.co
Kushagra Bhattar Agri Inputs / Chemicals (022) 30433062 kushagra.bhattar@ambit.co
Nikhil Mathur Small Caps (022) 30433220 nikhil.mathur@ambit.co
Mayank Porwal Retail / Consumer Discretionary (022) 30433214 mayank.porwal@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 pankaj.agarwal@ambit.co
Prateek Maheshwari Cement / E&C / Infrastructure (022) 30433234 prateek.maheshwari@ambit.co
Prashant Mittal, CFA Strategy / Derivatives (022) 30433218 prashant.mittal@ambit.co
Rahil Shah Banking / Financial Services (022) 30433217 rahil.shah@ambit.co
Ravi Singh Banking / Financial Services (022) 30433181 ravi.singh@ambit.co
Ritesh Gupta, CFA Oil & Gas / Agri Inputs / Chemicals (022) 30433242 ritesh.gupta@ambit.co
Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 ritika.mankar@ambit.co
Sudheer Guntupalli Technology / Staffing (022) 30433203 sudheer.guntupalli@ambit.co
Sumit Shekhar Economy / Strategy (022) 30433229 sumit.shekhar@ambit.co
Utsav Mehta, CFA E&C / Infrastructure (022) 30433209 utsav.mehta@ambit.co
Vivekanand Subbaraman, CFA Media / Telecom (022) 30433261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7886 2740 sarojini.r@ambit.co
Anmol Arya India (022) 30433079 anmol.arya@ambit.co
Dharmen Shah India / Asia (022) 30433289 dharmen.shah@ambit.co
Dipti Mehta India (022) 30433053 dipti.mehta@ambit.co
Krishnan V India / Asia (022) 30433295 krishnanv@ambit.co
Nityam Shah, CFA Europe (022) 30433259 nityam.shah@ambit.co
Punitraj Mehra, CFA India / Asia (022) 30433198 punitraj.mehra@ambit.co
Shaleen Silori India (022) 30433256 shaleen.silori@ambit.co
Singapore
Praveena Pattabiraman Singapore +65 6536 0481 praveena.pattabiraman@ambit.co
Shashank Abhisheik Singapore +65 6536 1935 shashankabhisheik@ambitpte.com
USA / Canada
Hitakshi Mehra Americas +1(646) 793 6751 hitakshi.mehra@ambitamerica.co
Achint Bhagat, CFA Americas +1(646) 793 6752 achint.bhagat@ambitamerica.co
Production
Sajid Merchant Production (022) 30433247 sajid.merchant@ambit.co
Sharoz G Hussain Production (022) 30433183 sharoz.hussain@ambit.co
Jestin George Editor (022) 30433272 jestin.george@ambit.co
Richard Mugutmal Editor (022) 30433273 richard.mugutmal@ambit.co
Nikhil Pillai Database (022) 30433265 nikhil.pillai@ambit.co

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 Strategy

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