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The way people and goods move is set to change dramatically over the next two decades, driven by a combination of technology, economics, policy, demographics and change in consumer preferences. Electric vehicles were introduced long back, until the innovations in ICE (Internal Combustion Engine) technology gradually replaced them and created the current automotive industry, which is one of the largest industries in the world with vehicles alone contributing 3.5% of global GDP and 7% of India's GDP. Electric cars are seeing a rise in popularity today for many of the same reasons they were first popular. The automotive propulsion landscape is evolving rapidly and the questions faced by OEMs, as they look towards the future, are increasingly complex. Which technologies will prevail? How will consumers react to expanding range of choices? How is the battle for market share - ICE versus electric vehicles -likely to shape out?
Electrification of mobility is still in nascent stages in India but significant growth momentum is expected over the medium term with attractive investment opportunities. The growth, however, is dependent on multiple factors such as technology development, demand creation, price differentials, charging infrastructure and ease of charging for unhindered transportation. It would be interesting to see how EVs can bring about a change in the energy mix of India and how it will impact the oil demand in the country. This knowledge report tries to provide an analysis on evolution of EVs in the medium term and a perspective on impact of electric mobility in India.
As the name suggests, EVs use electricity as their power source; the electricity generation happens through batteries utilizing a range of underlying chemistries, with Lithium-ion (Li-ion) being the most popular as opposed to combustion of fossil fuels in traditional vehicles. Since their power-train is electric and not mechanical, they also have much fewer moving parts as compared to ICE vehicles.
EVs are charged using Electric Vehicle Supply Equipment (EVSE). An EVSE is a wall mounted box that supplies electric energy to the onboard charger for the recharging of electric vehicle batteries, with lots of intelligence built-in. The broad classification is as below:
The use of Slow or Fast charger not only depends upon the type of chargers, but depends on the type of battery- chemistry, Depth of Discharge of the battery used as well on the rate of charging /discharging and the temperature at which it is charged/discharged. Slow-chargers will charge batteries at about 0.1C to 0.2C (C stands for Charging Rate) and would charge the battery up to its full capacity in about 4 to 8 hours. Generally 2 Wheelers (2W) have a battery capacity of 1 kWh to 2 kWh, 3 Wheelers (3W) have a battery size of 3 kWh to 4 kWh and entry level cars have a battery size of 10 kWh to 30 kWh. Fast Chargers can charge a vehicle fully in about an hour. However, in fast charging, the charging rate has to be defined with respect to battery size of the vehicles to be considered as fast. Fast charging can be done using both AC and DC. There are broadly four type of DC Fast Charging connectors currently being used by electric car manufacturers all over the world.
1. CHAdeMO - Nissan and other Japanese companies like Mitsubishi SAE 2. Combo Charging System (CCS) - BMW, GM, VW, and other carmakers 3. Supercharger - Tesla standard connector 4. GB/T - BYD among other Chinese companies use this. Mahindra and Tata electric cars also use this standard
This is another option for keeping the EVs charged all the time. When the vehicles are about to run out of the energy, the batteries can be swapped at a swapping station, replacing a discharged battery with a charged one. The vehicles therefore do not need to be fast- charged or have very large batteries.
In order to understand the full implication of the EV movement, it helps to look closely at what's driving it. Unlike other massive shifts in consumer preferences which were all driven almost entirely by technological innovation, technology is just one part of a three-pronged phenomenon that's behind the EV revolution, others being the environmental factor and the role of Government.
FACTS & FIGURES Global EV Fleet
Source: IEA 2019
Global electric car fleet exceeded 5.1 mn in 2018 China remained the world's largest electric car market with nearly 1.1 million electric cars sold in 2018
Source: SMEV
India has emerged as one of the biggest 3W EV markets Total sales of 0.6 million units in FY19
Source: Bloomberg
India and other emerging economies are expected to go electric much slower
The key to the growth has been technological improvement in lithium-ion batteries. Due to economies of scale, the price for the lithium-ion battery pack is dropping steadily by 15% every year along with improvement in the energy density. Intense price competition is driving manufacturers to develop new chemistries and improved processes to reduce production cost. The learning rate (the price decreases every doubling of capacity) is considered to be about 19%.
The automotive sector is believed to contribute somewhere between 15 to 25 percent of polluting emissions, such as nitrogen oxide, particulate matter, and carbon dioxide. Collectively, these pollutants, which are now concentrated at their highest levels in the Earth's atmosphere in the last 650,000 years, are linked to climate change. This has led to public outcry which forced the auto manufacturers began marketing alternative-powered vehicles that produced lower emissions by augmenting internal combustion engines with electric motors.
As momentum continues to grow in support of greater environmental consciousness, governments around the world have begun to create a favorable environment for proliferation of vehicles with reduced emissions. These not only includes restrictions but also a host of national and local incentives are being implemented around the world to encourage more widespread consumer adoption of EVs.
Initial Cost of Vehicles: The single major factor for slow penetration of EVs is their high price which is around 1.5 to 2 times more than a comparable conventional vehicle. A 2W electric scooter costs around Rs. 1.15 Lacs compared to an equivalent ICE scooter costing around Rs. 0.60 Lacs.
The other important concern of EVs is their range per charge. To offer a higher range, higher battery capacity in the vehicle is needed which leads to increase in the EV price roughly proportionately and increases the price gap. As compared to a personal vehicle, commercial vehicles like taxi fleets, bus fleets, 3W run 4 to 5 times longer distance per day. Therefore, for such higher mileage vehicles savings on operating cost will pay-back the initial high purchase price faster than low mileage vehicles. Attractive power tariff can play a significant role to offset capital cost of buying EV with lower operating cost at faster pace.
Technology, Research and Development expertise: The major models available in the Indian EV market have been limited sub-par models which have low top speed, acceleration and range limiting their large scale uptake. The locally manufactured 3W are low on safety of passengers limiting their full scale commercial use. Lack of local technology, research and development facilities is a critical challenge in upgrading the quality of the local manufacturing which limits large scale mainstream uptake of these vehicles in India. Battery technologies are still evolving and long term reliability in real road conditions is still to be tested for various technologies.
Range is a critical barrier which needs strong technology intervention, especially for the commercial vehicles like 3W and buses, as it will have an impact on productivity per vehicle.
Consumer Acceptance and Awareness: The lack of consumer awareness about EVs and skepticism that persists among consumers while choosing between EV and conventional technology. The consumer's perception about practicality, potential advantages and functionality are varied on the basis of cost, convenience of fueling, charging and travel range. An established supply chain for conventional vehicles also gives it higher acceptability among consumers.
Charging Infrastructure: Ready access to charging infrastructure determines the EV experience. With growing EV penetration, India will need much more than its current charging stations which are sparsely located as against more than 50,000 retail outlets available for ICE vehicles, especially in case of electric 3W and buses, which will certainly require public/ specialized charging infrastructure. The challenges associated with creation of charging infrastructure include land ownership / leasing cost, regulations governing sale of power, power tariffs for transport sector and erratic power situation in the country especially in remote locations.
Import dependence and lack of local manufacturing facilities: Import of components and batteries is a major challenge in scaling EV uptake in India. Supply and value chain sustainability of battery with uncertainty about availability and dependency on Lithium, cobalt is another big challenge to EV adoption in India. Indian manufacturing capacities need to be improved considerably in order to reduce dependence on imports.
Environmental Impact: EVs may not be a straight solution to meet emission targets set by the Paris Climate Treaty. A well to wheel analysis of EV in comparison to ICE vehicles demonstrates that EV may not be as green as envisaged. The overall manufacturing chain of EV may produce a further substantial amount of GHG emissions. As penetration of renewable energy increases, EV becomes the greener choice. Hence, it is important to recognize that actual CO2 emissions for a BEV largely depend on how the power is generated. Over 65% of India's electricity generation capacity is coal-based. Hence, EVs may not reduce CO2 emissions on an overall basis in India. But it can certainly reduce CO2 emission concentration in cities.
Power Source of an Electric Car Matters: Carbon emissions of grid powered EVs by country to country (gCO2/km)
Source: Statista.com
Total Cost of Ownership (TCO) One of the major factors influencing EV proliferation is the Total Cost of Ownership of the vehicle (TCO). TCO includes the initial capital cost and running cost over the life of the vehicle. Lower TCO of 2W and 3W makes a compelling case for electrification of these segments. However, lack of charging infrastructure and high charging time is the major roadblock for penetration of EVs in these segments.
TCO for cars and buses for an ICE vehicle is much lower than EV today. But, government subsidies and incentives are expected to initiate the penetration of EV in these segments. The penetration would be much slower compared to the 2W and 3W segment and would be driven by market only when the TCO for EV is economical.
TCO Comparison EV Vs ICE (In Rs/Km)
BPCL Analysis Electricity cost considered at Rs 8 per KWH
Electric vehicles are taking ever-bigger bites out of global oil demand, but they haven't yet caught up with the growing size of the pie. Gasoline and diesel displacement by electric vehicles will grow by 96,000 barrels a day in 2019, as per BloombergNEF. That brings the lost cumulative demand since 2011 at 352,000 barrels a day. By comparison, total global oil demand growth over the same period rose 12 million barrels a day to 100.6 million, according to IEA. Electric vehicles have displaced about 3% of oil consumption growth since 2011. More than three-quarters of the displacement so far has come from electric buses. About 500 barrels a day of diesel demand is displaced for every 1,000 electric buses on the road, about 30-times the rate for medium-sized battery electric cars. As per BNEF, if EVs continues to maintain the same growth rate, the oil displacement can touch 6 mbpd in 2040.
Before looking into Indian oil demand, it would be prudent to understand oil demand scenario in China. It represented 76 % of all commissioned lithium-ion battery manufacturing capacity; logged 60 % of global EV sales in fourth-quarter 2018; and held 50 % of global public vehicle-charging infrastructure as of the end of 2018.
As per WWF report on China oil demand, the oil displacement will happen in phases. EVs will face a subsidized growth during the 2016-20 when the oil displacement effect in this period is immaterial, as ICE vehicles and oil will remain a more cost-effective combination than EV and electric batteries. The oil displacement will grow in line with EV sales over 2021-25, with more than 570,000 barrels being redundant each day. The numbers become meaningful soon after 2025, the year in which WWF assumes economics will tilt decidedly in the favor of EVs resulting in oil displacement to reach 1 million b/d.
According to the projections made in the Energy Outlook for India by BP, India's primary energy demand is projected to more than double, from 754 MMTOE in 2017 to 1928 MMTOE in 2040. Although the share of oil in total energy mix may come down to 23% from 29% over the same period, the oil requirements however will go up from 5 Mb/d to 9 Mb/d.
2017
2040
Source: BP Energy Outlook
Niti Aayog's has made projections for segment wise EV penetration in India (as a % of total annual sales) till 2030. This is based on the effect of kickstart provided to EVs by FAME - II and other supporting policies.
The projections made by NITI Aayog are very optimistic compared to projections by other agencies. Hence, analysis of impact on oil demand is done based on three scenarios of high, medium and low penetration levels of EV (EV Sales as a % of annual vehicle sales). The penetration levels of EV by 2030 under various scenarios is illustrated below.
An inevitable electrification of 2 Wheelers can have a major impact on MS demand which represents more than 60% of MS demand. If NITI Aayog's projection of 80% penetration of 2W EV sales is achieved by 2030, the demand for MS in 2030 may taper down to today's demand. MS demand could show signs of de-growth as early as 2026. While 80% penetration would always remain an ambition, even a 40% penetration would result in demand of MS peaking around 2030. Therefore, there is a pressing need for OMCs to play a significant role in EV value chain to regain the ground lost potentially in MS sales.
3W accounts for nearly 2% of MS demand and 6% of HSD demand. The growth is already slow for 3W segment due to adoption of CNG and de-growth is eminent. Hence, electrification of 3W presents an opportunity for BPCL to expand its footprint in the 3W segment.
Around 30% of HSD demand is by non-transport sector and an equal demand is by HCV/LCV Cars, 3W, buses, railways, aviation and shipping constitute balance 40% of the HSD demand. Large scale electrification of HCV/LCV are not expected to take place in the next decade.
Around 60% demand with growth is expected to be intact for HSD. Further, electrification of cars, 3W and buses will have only a minimal impact on overall HSD demand.
HSD Impact in MMT
BPCL Analysis
Having studied the EV ecosystem, technology trends, policy trends and mindful of the mechanisms of the existing Oil & Gas ecosystem, BPCL is of the view that our current fuel sales may not be impacted for a considerable period of time. This is essentially because are expected to be on the rise fueled by economic growth. However, there is a compelling need to take note of global developments happening on the e-mobility front.
The EV ecosystem offers various new business opportunities like EV charging, battery swapping, battery manufacturing & battery recycling. BPCL took its first step into the EV ecosystem by commissioning its pilot Electric charging station in a Retail Outlet at Kalamna, Nagpur in July 2018 as an entry to the ecosystem. We are also working on alternate business models, and battery-swapping is one such game changing strategy. Battery Swapping model can address multiple concerns regarding charging infrastructure. The process will eliminate wait time for charging, make better use of land, reduce the size of batteries and battery degradation due to fast charging in vehicles and will give an increased available run time. Battery swapping stations will enable users to exchange their discharged battery with a fully charged battery within a few minutes improving the utilization characteristics of vehicles which would not need to be fast charged. BPCL is closely working with IIT Madras and other stakeholders including battery and automobile manufacturers for using our Retail Outlets as swapping stations, catering to the last mile connectivity market by promoting shared mobility business model. This would also provide an opportunity for additional revenue generation for our dealers offsetting the losses in the MS demand. BPCL is in the process of conducting such an E-mobility pilot on this model for three wheelers in two of the major cities in India.
The biggest hurdle for India's EV ramp up will come from its near non-existent EV ecosystem—from charging infrastructure to local manufacturing of critical components. While it is fair to expect EVs to support sustainability goals, it is imperative to understand that EVs are effective only in a conducive ecosystem, driven by models of sustainable electricity generation and consumption. From an electricity generation perspective, India is highly dependent on thermal sources, which account for about 65% of current installed capacity. Therefore, it is critical that the contribution of renewables also increases concurrently along with the increase in EV adoption.
Transformation of India towards electric mobility would require polices which are framed in a collaborative manner with a clear long-term vision. Implementation of these policy measures will require close coordination of all the stakeholders at various levels. Disproportionate impetus in nascent stages may create future entry barriers or show declining viability eventually. Hence, in the early stages, it would be encouraging for policies to be supportive for a gradual adoption of EVs.
There's no denying that electric cars will change the transportation landscape of India in the coming decades, but the transformation will be gradual. From an oil industry perspective, the upside is that EVs will have no significant impact on oil demand in the short term. In the longer term, the impact of the trends currently underway can result in electrification of selected vehicle segments, which can pose a threat to MS & HSD demand. Impact on MS demand may be as high as 22 MMT and impact on HSD demand could be a moderate 17 MMT in 2030 as per our internal analysis. Hence, there is a need for the Oil & Gas industry to be prepared to face these potential disruptions. BPCL intends to be a frontrunner in adapting to EV ecosystem by developing new business models. BPCL's approach to enter with its unique business model based on battery swapping holds its relevance in this current scenario of EV adoption. It addresses the concerns and challenges involved in the conventional charging models and provides a win-win solution for all the stake holders. The technological support from IIT Madras backed up by the ready base load demand provides strength and scalability to this business model. We look forward to the success of our pilot project and subsequently, scaling it up to evolve into a successful business line contributing to not just the bottom-line of the company but also doing our bit to support India's commitment to tackle climate change.
IEA: Global EV Outlook 2019 Bloomberg NEF: Electric Vehicle Outlook 2019 BP Energy Outlook 2019 The KEN articles EY: Standing Up India's EV ecosystem - who will drive the charge? HSBC Report: Indian Electric Vehicles - Storm in a teacup WWF - Climate Change & Financial Risk NITI Aayog Report - India's Electric Mobility Transformation Prof. Ashok Jhunjhunwala Blogs SIAM India Statistics PPAC Analysis & Reports Stearns Electric Data Image Credits: Canva
Visakh MT(Team Corporate Strategy), Mayank Jhunjhunwala(Executive Finance, Corporate Strategy)
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