Covid-19 impact on EV Industry

Overall view

The COVID19 outbreak and the lockdown due to this pandemic has severely impacted business operations across all sectors and across all geographies. The pandemic has virtually stunned all economic growth across the globe, including the automobile and battery industry. 2019 was a mixed bag for the EV market, however the year ended on a positive note. Now the pandemic has brought everything to a standstill, and a global recession is looming.

On the long-term view, we should continue to beleive that the electrification of road transport will increase from here. The short-term picture remains difficult, for all the sectors including automotive and EV. This global crisis is leaving its scars across all the industrial manufacturing sectors, with global production coming to a complete halt. With the trucks parked along the national highways, it's drivers scattered and warehouses closed, there exists no supply chain infrastructure to cater to full fledged manufacturing even if the factories are reopening now. At the same time the consumption is also severely dampened. Considering the current scenario and the impact this pandemic has created, it appears almost certain that the Indian economy and the Indian automotive sector will not be going back to the old normal levels anytime soon. The new normal will bring many challenges and opportunities as well. The positive news is that GOI hasn’t deferred or cancelled policies designed to regulate the Internal Combustion Engine (ICE) vehicle emissions and the automakers haven’t changed their goals for pollution free transport and carbon neutral goals.

There has always been a very strong case for electrifying road transport and now it is believed that once the health crisis passes, the governments across the world will speed up the process. Few policy think-tanks are already advocating the introduction of Clean Air Zones to encourage more people to leave fossil fuel-powered vehicles behind. The EV sector may see a strong V shaped high growth recovery in the coming years. The impact of COVID19 on EV industry has to be seen from three perspectives – supply side, demand side and investments.

Supply side Impact

China accounts for 25-30% per cent of India's automotive part imports. Major global auto- part makers such as Robert Bosch GmbH, Valeo AS and ZF Friedrichshafen AG have factories located in the Hubei province. The shutdown and slow recovery of industrial activities in Hubei province certainly has a short-term impact on automotive industry in India, as well as the EV industry. Most of the automotive parts manufacturers based out of India are expected to take a huge blow from pandemic. Coronavirus containment measures will also affect all facets of the battery supply chain, as battery raw materials markets face an immediate challenge. For Indian EV manufacturers who plan to achieve high levels of localisation, the supply side risks are relatively lower. Large scale giga factories in India are the only way to build a strong EV industry, and GOI must ensure to get the phased-manufaturing-program for lithium ion batteries implemented at the earliest.

Demand side Impact

Consumers may be more averse to the risk of adopting new technologies. Many will postpone automobile purchases altogether. The full impact of the pandemic is yet to be seen. Demand and exports to North American and European markets is expected to decline this year. When the lockdown measures are removed, we will see a bounce back in demand, but the timing and scale are unclear. Experts say that the replacement demand is expected to log a modest growth of sub 3 percent in value terms, as people will refrain from buying new vehicles and spend on maintaining existing vehicles. EV and battery lease program should be introduced by the industry, to encourage the customers to utilise the pay-per-use model and for faster adoption.

Investments

It is now market news that Suzuki Motor Corp’s (SMC) battery plant, a joint venture with Denso Corp and Toshiba Corp, which was slated to commence production by end-2020, has been deferred. Having already made huge investments for complying with the Bharat Stage VI emission norms, many of the leading auto manufacturers are expected to focus on restoring demand and manufacturing the core bread and butter products and perhaps are likely to put their EV plans on the back-burner. They are expected to plan on resurrecting the traditional businesses, to recover their investments made and to get the demand back for ICE vehicles, many auto manufacturers are expected to keep the electric mobility related projects in abeyance. Finding investors will be a challenge for the EV industry in India and innovative business models such as EV / battery lease program and high-technology colloboration for lithium ion cell manufacturing may still get the attention of investors.

Low oil price impact

In addition to rattled consumers, greener vehicles are coming up against some of the cheapest gas prices in years. The dramatic collapse in worldwide demand for oil led to an extraordinary development in the month of April 2020 when US oil benchmark (West Texas Intermediate) prices fell below zero for the first time ever, and kept falling. The coronavirus pandemic has led the global economy to slam the brakes, leading to an extremely sharp drop in the demand for oil. It has created a massive oil glut and raised concerns about the lack of physical storage space for it. Also when Saudi Arabia launched a price war earlier, the Brent price saw a fall of over 30%, its biggest drop since 1991. During the month of March and April of 2020, the oil prices have almost halved, when compared to the start of the year.

With Indian government hiking the excise duty and VAT on petrol and diesel, the end consumer has no benefits or drawbacks passed on, making the recent oil price crash a bounded opportunity for growth of EV vehicles. With Government of India using the oil price crash strategically to its advantage, this factor could be a major boost to EV adoption post COVID recovery.

Instinctively, many would think that such a massive fall in the global oil prices will be bad news for the electric vehicle industry, as the primary advantage of EVs is that it has a better total cost of ownership than ICE vehicles. Global research firm Wood Macinzie recently published an article, which mentions that “purchase price, charging infrastructure, ease of buying and available models has a much greater impact on EV sales at this moment – the price of oil has little to do with it.”. This clarifies that that the focus of the EV industry should be on reducing the high purchase price of the EVs and to setup sufficient charging infrastructure, and not on falling oil prices.

Thus Indian EV industry should focus on bringing down the cost of electric vehicles and creating charging infrastructure to grab the opportunity.

Pollution Impact

The world suddenly is realising the benefits of lesser air pollution, as most of the petrol and diesel vehicles are not being driven due to the global lockdown. The lockdown, industrial activity shut down and cancellation of flights has resulted in lower greenhouse gas emissions and cleaner air in some of the world’s most polluted cities. Busy urban centres like New York and New Delhi are seeing a sharp reduction in carbon dioxide, carbon monoxide and methane emissions, with air pollution levels dropping over 50-60% in just a few weeks, strangely coinciding with the 50th anniversary of the Earth Day. Perhaps this is the only positive take-away from this terrible crisis, as it underscores the environmental damage due to vehicle pollution. The global pandemic has given us a rare glimpse of low-carbon future if we adopt smarter and sustainable mobility solutions. We are conducting the largest ever global air pollution experiment, by turning off all major polluting sources in industry and transport over a relatively short period of time.

Covid-19 fatality rates have been linked to air quality. Steps will have to be taken to reduce air pollution, as it makes people vulnerable to coronavirus infection, which manifests itself in the respiratory track. This unprecedented opportunity should be grabbed, as this pandemic is likely to change the ways we commute. This is an indication of what could be achieved permanently for air quality if ICE based vehicles are phased down and replaced with electric vehicles. Large scale introduction of EVs should be considered, as a way to do things differently after the pandemic, if we need to hold on the temporary improvements in the air quality. A large-scale introduction of EVs and renewable power will play a key role to bring down the air pollution levels in India, and will assist in making our cities liveable and sustainable.

Impact on Public Transport

The role of public transport during pandemics is crucial. Even during a total lockdown situation, when public transportation was banned, buses were used for transport of essential staff / services, transporting patients, suspects, medical staff and supplies, provision of interim facilities, transporting police personnel, transportation of government personnel and used as exclusive vehicles for health care services such as mobility monitoring, transit of medical supplies, waste and mortuary services etc.,

Post lockdown, to maintain hygiene and social distancing measures, public transportation should include key aspects like staggering timing of buses, limiting maximum allowable occupancy, rear door boarding and front door alighting, ticketless travel by smart cards, regular sanitation, staff hygiene, mandatory usage of masks and floor markings for social distancing. Passenger hygiene to be achieved by providing sanitising kits inside the buses and by flashing awareness messages inside the vehicles.

Impact on private transport

With more and more Indians adopting the social distancing norms, the private vehicle sector is poised to witness a significant momentum in the country, making way to a substantial increase in the adoption of electric vehicles as the idea of clean energy alternatives and becoming more mainstream. While many Indians prefer private vehicles to reduce the odds of catching the contagious virus, they would also look for safer and economical commuting options leading to a further increase in the adoption of low and city speed electric scooters, due to low purchase price and extremely low running costs besides ease of use and low maintenance. Switching from ICE to electric vehicles would also reduce the travel pitstops at the fuel stations given the fact that electric vehicles are supported by portable batteries further increasing the concept of contactless transportation thereby enhancing consumer confidence in these troubled times. A low cost electric scooter is seen a sunrise product, in these challenging times.

Impact on goods transportation

Daily movement of trucks has collapsed to less than 10% of normal levels in the month of March and April 2020, according to All India Motor Transport Congress, an umbrella body of goods vehicle operators representing about 10 million truckers. Trucking has emerged as a major choke-point in global supply chains for everything from food to medical supplies as governments take stringent steps to contain the pandemic, restricting the movement of vehicles and people to drive them. Shortage of labours for loading and unloading, limited opening of highway repair and maintenance shops and dhabas are creating challenges even as trucks are now allowed to ply in highways.

Installation of highway charging infrastructure is key to introduction of electric trucks for goods movement in India. By providing electric trucks on lease to truck operators and to logistics companies, the issue of high initial purchase price of electric tucks can be addressed. According to McKinsey report titled “Transforming the Nations Logistics Infrastructure“, National highways along the seven corridors (connecting Delhi, Kolkata, Chennai, Kochi, Mumbai and Kandla) account for less than 0.5% of the road network capacity but still carry more than 40% of the freight movement by road. These seven long haul corridors that connect 15 high growth clusters form the backbone of India’s logistics network. EV truck introduction should involve strategy for building the right network of electric trucks in the right corridors, and creating enabling charging infrastructure along the chosen corridors.

Conclusion

Amid the uncertainties due to the coronavirus pandemic, there is still a glimmer of hope for electric vehicle manufacturers in accelerating the growth of the electric vehicles market. But that would require a big change in the ecosystem from the point of view of manufacturing. Today, most companies that manufacture electric vehicles on a global scale rely on imports from other countries (China, South Korea and Japan) for many components such as drivetrains and batteries. Interestingly, if one looks at the automakers that are making internal combustion engine (ICE) vehicles, the big boost for the industry came through domestic manufacturing. India needs multiple large scale giga factories for manufacturing of lithium ion batteries, to take on the uncertainties of the pandemic and emerging as a strong nation.

The onset of Covid-19 has brought into focus the critical importance of indigenization and localization of battery cells as a series of disruptions in the supply chain for Li-ion batteries will affect Indian electric vehicles and stationary energy storage market. One positive side effect could be a reassessment of globalised EV supply chains. The entire global EV industry is currently heavily reliant on China, not just for lithium ion batteries, but also for battery-grade chemicals, cathodes and anode materials. With GOI's objective of manufacturing lithium ion cells in India would largely reduce the risk of supply chain disruptions and currency fluctuations, create shorter lead times and reduce carbon footprint.