In 2019, it launched the National Clean Air Programme as a strategic intervention to reduce air pollution levels across the country. City-specific clean air action plans have been prepared and rolled out for implementation in as many as 132 cities. Meanwhile, the NITI Aayog and Rocky Mountain Institute’s Shoonya campaign is building awareness around fleet adoption of electric vehicles (EV) for last-mile deliveries. Urban freight vehicles account for over 10% of transportation-related CO2 emissions in India, a number that is set to increase by about 115% by 2030 due the sharp rise in e-commerce demand for deliveries, according to the NITI Aayog. At least 30 of India’s top EV and delivery aggregator service providers have pledged their support, according to news reports.
Meanwhile, Delhi, Mumbai and Bengaluru are upgrading their public transport facilities, albeit they are still using internal combustion engine (ICE) vehicles. A shift from ICE vehicles to EVs is crucial to reversing the impact on air quality. China reduced air pollution in its major cities of Shanghai and Beijing by limiting ICE vehicles, relocating polluting units and using EV incentives, among other steps. A glance at ecology-conscious markets like Norway and Iceland offers a clear picture of how rapid EV adoption can meaningfully reduce pollution levels.
ICE commercial vehicles are large users of diesel in India, which is our most heavily used fuel. To be sure, 16 Indian states have proposed independent EV policy frameworks, but these do not include light commercial vehicles (LCVs). The inclusion of policy incentives for logistical service providers to shift to electric LCVs can propel the use of cleaner alternatives and improve urban air quality. Other ideas include incentives to EV original equipment manufacturers (OEMs) and green taxes levied on ICE vehicles based on emissions and time spent in urban areas that could deter ICE vehicle usage. An effective policy framework for charging infrastructure would help too. As of now, no distinction is made between slow, medium and fast charging set-ups, and our recent battery swapping policy applies more to the 2W and 3W segments than their 4W counterparts. A push for a reliable pan-India fast-charging network will be an essential driver of EV adoption across vehicle categories.
Apart from the development of charging station networks, lowering the cost of ownership and bringing in more fleet financing options will support the EV adoption rate for commercial transport. The total cost of ownership (TCO) for EVs, a key determinant, needs parity with ICE vehicles. While the cost of battery replacement is expected to decline by 40-45% over the next decade, accelerating this reduction would depend on India’s self-reliance in the fields of battery raw materials and manufacturing. An upfront subsidy for fleet owners to purchase commercial EVs could be instituted. Recently, the NITI Aayog recommended the inclusion of EV and EV-charging in the Reserve Bank of India’s framework for priority sector lending. This would help finance EV fleet conversion, as 60-70% of vehicles are financed with little or no difference in interest rates.
India’s fleet vehicle financing penetration is relatively robust, with nearly all commercial vehicles bought on loans. Hence, finance availability and vehicle resale value buoyancy will be important for mass fleet electrification. Loans for EVs could be made more efficient. While banks typically offer a 25-50-basis-points benefit on ESG (environmental, social and governance) assets, lending institutions currently take a hit on their bottom line in providing ESG finance.
Going clean and green is the need of the hour. A healthy ecosystem will generate higher economic returns from all the activities it supports. India has the potential to leap into a global leadership position on the commercial EV front. It is among a handful of countries supporting the global ‘EV30@30’ campaign that aims for 30% of all new vehicle sales by 2030 to be electric. Prime Minister Narendra Modi has urged “Sabka prayaas" (everyone’s effort). In this spirit, the participation of relevant industries, local governments and communities in an EV-conversion drive could get India closer to that goal.
Incentivizing innovation among new-age electric OEMs and helping build a talent pool that will fuel this growth story are equally important. The future of urban logistics is better served by clean and sustainable energy, electricity being the front-runner among alternate energy options. Our cities deserve better logistics for the sake of today’s population as well as future generations. We have made seismic technology shifts with smartphone proliferation, connectivity and UPI payments, opening generation-defining opportunities. Commercial EVs can give us another big leap to a better future.
Rahul Saraf, MD, head of India investment banking, Citi, contributed to this column.
Inderveer Singh & Jason Wortendyke are, respectively, founder and CEO, EVage; and managing director, global co-head, diversified industrials, Citi
