View from India: EVs drive into rural India

Around half that total is the potential revenue to fiscal 2026 for various stakeholders including original equipment manufacturers (OEMs) and component manufacturers. Disbursements for vehicle financiers account for Rs 90,000 crore (£9bn), with shared mobility and insurance making up the balance

The EV market in India has witnessed a sharp spike in FY22 compared to that of FY21, as more people are shifting from internal combustion engine (ICE) vehicles to EVs of various kinds.

“The penetration in terms of sales indicate that the percentage of two-wheeler (2W) EVs has risen by 2 per cent, while that of 3Ws has gone up by 5 per cent,” said Hemal Thakkar, director, CRISIL Research, at a CRISIL media webinar on the electric vehicle ecosystem. “The passenger vehicles (PVs) has witnessed an increased adoption as people view it as a second vehicle. What is interesting is that EVs have found a market in tier cities and rural India,” he continued.

Driven by the government’s fiscal and non-fiscal measures, smaller towns and rural India are also joining the community of EV users. Statistics from Vahan, a data repository of all vehicles registered in the country, reveal that the contribution of the top 10 districts in nationwide sales of electric cars and 3Ws dropped from 55-60 per cent in fiscal 2021 to 25-30 per cent in fiscal 2022. For 2Ws, the percentage declined from 40-45 per cent to 15-20 per cent. The gaps are being filled up by smaller towns and rural India.

Could we say that EV has found a calling in tier cities and rural India? Possibly yes. Around 70 per cent of the country’s population is represented by rural India. But public transport and accessibility remain a challenge in a large chunk of the villages. No doubt many households have the regular petrol-powered 2Ws. But then, petrol prices are escalating and also petrol pumps are far from many in fringe areas. This is where EVs fit in, and it appears to be well-timed. Rural India is getting electrified; as power supply has improved, charging these vehicles is not a distant dream for rural riders. Then, solar panels are gradually becoming a regular feature on rural rooftops.

Another way of looking at it is that rural India is mostly agrarian in nature, with small businesses and roadside kiosks as other occupations. A significant share of pick-up trucks and tractors are used for commuting. Many of these vehicles are old and may possibly be less efficient in terms of fuel usage. To that extent, EVs may have found a market in the rural belt.

It is also likely that the pandemic has led to the expansion of digital shopping to include rural consumers. For the sake of last-mile connectivity, Electric two-wheelers and compact three-wheelers have a market in the rural segment. What’s more, electric bikes don’t require a driving licence, making the process of owning one hassle-free. Getting a loan and clean mobility are other reasons for owning an EV. And this is true for both the rural and urban consumer.

Whether it’s rural or urban India, certain challenges could probably be ironed out, as in the case of the commonly used lithium ion batteries. This has led to a high dependence on imports for cells. The launch of the production linked incentive (PLI) is expected to improve the domestic supply situation over the next couple of years. The government has come forward with a joint venture (JV) company. Titled KABIL or Khanij Bidesh India Ltd, the JV will be set up with central public sector enterprises such as NALCO, Hindustan Copper Ltd and MECL to streamline supply of critical minerals including lithium. A change in battery composition is likely to drive the growth of the battery management system (BMS).

The EV ecosystem may need an impetus. “Ecosystem development through initiatives such as battery swapping, recycling and urban mining are being explored by the government and private stakeholders. EV adoption is increasing across the nation [with] new business models to meet specific requirements,” added Thakkar. For example, there is MaaS or mobility as a service, where the thrust is on shared mobility. Operations are interlinked, with the vehicle and the charging infrastructure deployed on pay-per-use model. The fact that there are players like BluSmart and Lithium Urban means that this segment has takers.

Sun Mobility, Lithion Power and VoltUp have positioned themselves in the battery-as-a-service (BaaS) model. This is a battery-swapping subscription-based model, where the ownership of the asset lies with the company and not with the user.  

The Micro Mobility model is to do with micro rental of vehicles. Vehicles are operated in self-drive mode, through which users can hire as well as deploy vehicles. Already companies like Zypp, Bounce and Yulu have whetted the market. Public charging stations is another growth area where pay-per-use models are doing the rounds. Statiq and BluSmart have already created open-source business models in this segment.

“In sum, the emergence of EVs is an opportunity for both existing and new industry participants to innovate and capitalise on the quickly evolving passenger and cargo mobility. To address ecosystem challenges of the EV industry, the government is considering rolling out a structured battery-swapping policy. Such facilitations will go a long way in realising the EV potential,” explained Jagannarayan Padmanabhan, director and practice leader, transport and logistics, CRISIL Infrastructure Advisory.  

In addition, improved availability of finance could enhance the adoption of EVs. “Considering the improving cost parity and the government’s focus on electrification of vehicles, we should not be surprised if EV penetration reaches 15 per cent in two-wheelers, 25-30 per cent in three-wheelers, and 5 per cent in cars and buses by fiscal 2026 in terms of vehicle sales,” Thakkar  concluded on an optimistic note.