Solutions for the 2 Big Hurdles for Indian EVs

Battery Electric Vehicles (EVs) are gaining traction in India. The market for EVs is expected to generate over $100 billion of revenue by 2030. Yet, as we saw last week (Link to last week's article:) there are two big questions that many EV brands are unable or unwilling to answer. These are -

1) Battery Degradation:

EVs run on rechargeable batteries. Battery performance and lifespan significantly impact the vehicle range. Over time, EV batteries lose their capacity and efficiency due to India’s high temperatures and the abysmal quality of charging infrastructure and chargers. Most EV brands in India will struggle to provide replacement batteries. Moreover, the replacement battery cost is likely to be very high. So, it is very likely that EV adopters in India will face difficulties as their EV batteries get older.

2) Resale Value:

The favourable Total Cost of Ownership (TCO) calculations put out by the EV brands vis-à-vis ICE are a sham. TCO calculations do not take into account a large and decisive component, the resale value. EV resale values in India are poor due to 3 reasons.

1) Fluctuating central and state government incentives for new EVs,

2) Rapid technology obsolescence in EVs which results in

3) Zero demand for used EVs.

A 5-year-old EV may typically have less than 20% of purchase value. In comparison, an ICE can fetch up to 40% of the purchase price. Old Reva EVs in India fetch less than the price of a decent used motorcycle for these very reasons.?

The Nissan Leaf Case Study

Smart Indian buyers are aware of these two unanswered questions. They understandably balk at purchasing an EV even if their typical use cases favours EV usage. So how do EV brands get themselves out of this Gordian knot that they have tied themselves into? The answer lies in studying the experiences of customers and service providers in developed EV markets.

Take the Nissan Leaf EV, one of the first popular, mass-market EVs. The Leaf EV was first launched in 2010 and sold over 650,000 units worldwide. Most owners love their Leafs. Since EVs have fewer moving parts and need little maintenance, their owners want to continue to hold on to their Leafs in perpetuity. The big stumbling block to this, as expected, is replacing the battery.

To be fair, some authorised Nissan Dealers abroad may sell and replace your old Leaf battery. But customers report that they have been quoted as high as $15,000 all-inclusive for an “official” replacement. It makes no sense to pay this amount for a a decade old vehicle when a new EV with much higher range, better features and safety is available for under $27,000. Moreover, Nissan Dealers will replace it only with a battery of the original capacity you purchased your Leaf with! So you are stuck with a low range even when higher range batteries are available.

Understandably, something of a cottage industry has sprung up in markets with a lot of Nissan Leaf units available for refurbishment. Depending on the size of the battery purchased, an after-market solution can cost anywhere between $3000 to $8000 all inclusive, for a new battery. Also, aftermarket refurbishment garages are only too happy to upgrade your battery to a larger capacity. Thus, your refurbished Leaf may potentially have over twice the range it originally came with! Also, there is an entire community of developers who have open-source DIY videos and instruction manuals on how to refurbish and improve a Leaf EV. However, the reliability and life of these aftermarket refurbishments remain a hit and miss affair.

The Solution for Indian EVs

The resale value issues and battery concerns of EVs in India disappear through one simple solution. The EV manufacturer should sell the vehicle and lease the battery. Think of the battery as your TV’s Set-Top-Box (STB) or WiFi Router. You cannot view your TV without the STB or Router. You lease an STB or Router and make monthly payments for it depending on usage. Similarly, the battery of an EV should be leased with the fixed cost depending on capacity, charging speed and technology and the variable cost based on usage.

A built-in eSIM in the battery can keep reporting the data through the app to the vehicle owner and manufacturer in real time. Of course, the user still pays for the electricity used in charging. This is similar to the electricity used in the STB, router and TV example. Just as we upgraded from an SD STB to HD STB to HD with Recording, the EV maker can always tempt the EV owner with upgrades to newer technologies for faster charging and a longer range entailing higher payments. When the battery degrades below a pre-decided level, the customer is automatically eligible for a replacement of the leased battery based on the Quality of Service (QOS) parameters committed at the time of sale. As long as the QOS parameters are logical and delivered, the Indian customer would not mind a cheaper, lower technology battery.

This however, requires a change in mindset of the EV manufacturer from the current ICE based mindset of ‘sell it and forget it’ to a TAAS mindset. With the TAAS mindset the EV manufacturer becomes involved in being constantly engaged with the owner like a utility company (think Tata Sky, Airtel or Jio). Unless EV makers change their mindset newer, nimbler challengers await in the wings to move the proverbial cheese for legacy automakers.

What is your opinion of the leased battery model of EV sale? Do you think this would indeed be a game changer for the industry? What are the potential pitfalls as per you? Would love to hear your feedback.

Look out for my next article. I post them every Friday.