India EV thematic report_2024 May 22.pptx

Presentation on sunrise sectors

1. India: EVs – Evolving landscape 05-05-2024 BANKING RESEARCH TEAM

2. EV-Transforming Global Mobility Summary Rationale for global push towards EVs World focused on Climate change issues; India aims for net zero by 2070 Transport is the 3 rd largest emitter of greenhouse gases, with 13% share in total. Within transport, road sector accounts for 90% of emissions. Policy push needs to focus on demand side vis-à-vis supply EV penetration at c.2% in cars while c.80% in 3-Ws and c.5% in 2-Ws. Hence close watch on extension of FAME-II (currently not including cars) Supply side incentives like PLI, tax concessions etc to play a role in medium term Focus needs to be on electrification of heavy duty vehicles like buses, commercial vehicles given their high emission intensity Challenges are in policy focus and pose opportunities in future Inadequate charging infra Battery has high import dependence and vulnerable to raw material, recycling risks Financing of EVs a key area in focus Banks provide “Green Miles” for concessional 4-W and 2-W EV loans Take-up limited as credit intensity high for EV segments with low penetration like 4-Ws and CVs Challenges: high interest rate charged ( esp by NBFCs), resale risk, technology risk, low LTV ratios

3. India has been progressing in EV adoption Status of EV adoption in India Source: SMEV and UBI research EV sales have spiked in recent years ‘000 units EV sales have spiked in recent years Mn units EV type FY24 sale (‘000 units) EV adoption rate (%) 2-wheeler 944.1 ~5% 3-wheeler 632.5 ~82% 4-wheeler 90.4 ~2% Bus 3.7 ~3% Commercial vehicle 0.0 ~0.1%

4. India is a nascent player in EV market vis-à-vis global peers Status of EV adoption and policy boost : India vis-à-vis the globe Source: CRISIL and UBI research Comparison metric India US China

5. India : Cost economics for EVs vis-à-vis ICE* vehicles Except for privately-owned cars, EVs are already more competitive than equivalent ICE vehicle models in Total Cost of ownership (TCO) terms over life of vehicle Breakdown of total cost of ownership of 2W and 3W in China and India, 2023 TCO comparison by segment, 2022 *Internal combustion engine; Source: IEA and UBI research

6. India : Cost economics for EVs vis-à-vis ICE* 2Ws Electric two-wheelers are 40-50% cheaper than their gasoline-powered equivalent over their lifetime as current demand incentives (FAME II) considerably reduce cost Cost comparison between a gasoline scooter and an equivalent electric scooter for total cost of ownership (left panel) and purchase cost (right panel), 2022 and 2030 TCO estimates for a personal car assume a vehicle life of ten years and a yearly running of 12 000 km. For commercial cars, they assume a vehicle life of five years and a yearly running of 52 000 km. The purchase price estimates (right panel) assume that the FAME subsidy will expire in 2024. Taxes include GST and RTO charges. *Internal combustion engine; Source: IEA and UBI research

7. India : Cost economics for EVs vis-à-vis ICE* vehicles EV passenger car is c.10% more expensive than its gasoline- fuelled equivalent, and c.30% more expensive than a CNG- fuelled equivalent Cost comparison between a gasoline- fuelled car and an electric car for TCO (left panel) and purchase costs (right panel), 2022 and 2030 TCO estimates for a personal car assume a vehicle life of ten years and a yearly running of 12 000 km. For commercial cars, they assume a vehicle life of five years and a yearly running of 52 000 km. The purchase price estimates (right panel) assume that the FAME subsidy will expire in 2024. Taxes include GST and RTO charges. *Internal combustion engine; Source: IEA and UBI research

8. India vs Global peers in E V car adoption rate Norway and China are global leaders while India still lagging in EV adoption in cars Share of new cars sold that are electric, 2010-2023 Source: IEA and UBI research

9. N umber of available electric car models nears 600, two-thirds of which are large vehicles and SUV Notes: ICE = internal combustion engine. SUVs = sports utility vehicle. ICE does not include hybrids. Electric cars include BEV and PHEV cars. Analysis based on models for which there was at least one new registration in a given year; a model on sale but never sold is not counted, and as such actual model availability may be underestimated. The two columns for 2028 are based on electric model announcements, which are available only until 2028, and on a sustained decrease in the number of ICE models based on the trend over 2020-2023; Source: IEA and UBI research Car model availability by powertrain over 2010-2023 and in 2028 based on announced launches, and share of SUVs and large models among electric cars

10. Cost economics for EV cars in global peers Demand incentives support lower price and TCO for EV cars in China, Japan Source: IEA and UBI research

11. EU regulations to accelerate EV revolution Source: Virta hub and UBI research Demand side incentives like tax breaks, subsidies They make owning an EV cheaper vis-à-vis a gasoline- fuelled car Alternative fuels infrastructure regulations to boost charging infra 60 km rule: Member States must install a fast charging station of at least 150 kW every 60 kilometres along the trans-European transport network Easy to use payment process: Policy mandates the possibility of an ad-hoc card payment at every EV charger above 50 kW Pricing transparency: A t charging points above 50 kW, pricing should be energy-based, i.e. per kWh and always clearly indicated to the EV driver before the start of the charging session Open data: Consumers must have unrestricted access to full information on the availability, location, waiting time, operational status and price at different charging stations Smart charging: Ability of an EV charger to communicate with its CPMS (charge point management system) via the cloud enables remote monitoring and managing of charging devices Energy Performance of the Buildings Directive (EPBD) EPBD obligates new buildings and buildings undergoing major renovations to either install charging stations or ensure the installation of ducting infrastructure in parking spaces

12. Challenges in EV expansion in India Price or Total Cost of ownership – This factor is unfavourable in case of electric cars which are currently priced higher than gasoline fueled cars. Demand side incentives can be stepped up to plug this issue. Range anxiety - There’s also anxiety over range which proves to be a dampener EV’s growth C harging Infrastructure - Limitations in charging infrastructure hampers EV’s popularity Lack of Secondary Market - A secondary market is essential for the EVs due to higher upfront costs High Replacement Cost - Residual value management programs via buybacks or other schemes needs to be developed. Supply Chain risk - Supply chain disruptions of minerals like Lithium, Nickel, Cobalt, Manganese and Graphite etc , in battery manufacturing are having an important downward impact on investor confidence and EV market . Automotive lithium-ion (Li-ion) battery demand increased by about 65% to 550 GWh in 2022, from about 330 GWh in 2021, primarily as a result of growth in electric passenger car sales. In 2022, about 60% of lithium, 30% of cobalt and 10% of nickel demand was for EV batteries. Only five years prior, these shares were around 15%, 10% and 2%, respectively. Reducing the need for critical materials will be important for supply chain sustainability, resilience and security, especially given recent price developments for battery material. Battery metal price fluctuation - As a result of growing EV markets and supply chain disruption, the value of critical minerals has increased significantly in the last few years.

13. India policy focus to boost EV adoption is more on supply vis-à-vis demand side measures Source: CRISIL and UBI research Details on Government policy and incentives provided in Annexure

14. Charging infra needs to be stepped up Source: CRISIL, and UBI research India needs to build 46,397 public charging stations by 2030 vs ~6,000 currently

15. Geographical diversity of charging stations needed Source: Vahan, and UBI research UP has more than 4.5 lakh EVs, but ~600 charging stations: only one station for every c.750 EVs

16. Battery ecosystem in India : work in progress Battery price reduction key to ensure convergence of EV vs ICE price in cars Falling global prices of lithium-ion batteries a + ve USD/kWh Source: CRISIL, Bloomberg and UBI research Battery accounts for 40-45% of EV cost; a key differentiator vis-à-vis ICE cost

17. Battery ecosystem in India : work in progress (2) Government making efforts to reduce import dependency via P LI scheme Source: CRISIL and UBI research

18. Challenges in Battery Industry in India Availability of raw material with reliance on imports and vulnerable to geopolitical disruptions Among the several extant battery technologies, the lithium-ion battery (LIB) is now the most suitable alternative. Although different LIB batteries exist, most EVs use lithium, nickel, manganese and cobalt (LNMC) and lithium iron phosphate (LFP) batteries. Limited supply of lithium, nickel, cobalt, and manganese precursors, which are all key raw elements needed in the synthesis of active cathode materials for lithium-ion batteries. With almost non-existent infrastructure throughout the supply chain and minimal deployment expertise, India must establish greater control over the lithium-ion battery supply chain. Environmental concerns on account of battery waste Batteries have a shelf life of eight to ten years, but once their energy-generating capability falls below 80%, they are no longer suitable for EVs Government has mandated battery recycling for manufacturers through the Battery Waste Management Rules, 2022. These guidelines propose mandating extended producer responsibility (EPR) , which would require manufacturers to be responsible for the collecting, storage, transportation, recycling, and disposal of spent batteries. However, operational expenses for a lithium-ion battery recycling unit are approximately 17 times higher than those for lead-acid battery recycling.

19. Government initiatives to promote battery infra India has joined the US-led Mineral Security Partnership (MSP) to help strengthen crucial mineral supply chains. The collaboration intends to speed up the establishment of varied and sustainable essential mineral supply chains. G overnment -to-government (G2G) discussions for cooperative exploration and mining are progressing with friendly nations. The Indian government established KABIL to secure a steady supply of crucial and strategic minerals through G2G negotiation and the acquisition of mining assets abroad. FAME-II Scheme: The scheme primarily focuses on boosting the electrification of public and shared transport, with the goal of supporting 7,090 eBuses , 5,00,000 e-3 Wheelers, 55,000 e-4 Wheeler Passenger Cars and 10,00,000 e-2 Wheelers through demand incentives. Production Linked Incentives (PLIs) for Advance Chemistry Cells (ACC): The government has invested around US$ 2.5 billion in this incentive scheme, which seeks to establish a local manufacturing capacity of 50 GWh of ACC and 5 GWh of niche ACC capacity (planned). Tax / duty concessions Basic customs duty exemption on the importation of machinery used in the manufacture of lithium-ion batteries used in EVs, as well as vehicle parts and subsystems. Customs duty on lithium-ion batteries is being reduced from 21% to 13%. Concessional basic customs taxes are being extended for electric vehicles and hybrid batteries. Additional funding has been allocated to support the recycling of old vehicles. The emphasis is on promoting the production of green hydrogen and biogas. Government has approved a Viability Gap Funding Scheme for setting up 4,000 MWh of Battery Energy Storage Systems (BESS).  The Scheme has provision for VGF to the extent of up to 40% of capital cost for BESS, which will bring down the cost of electricity from BESS. The VGF for development of BESS Scheme, has an initial outlay of Rs.9,400 crore, including a budgetary support of Rs.3,760 crore.

20. Financing challenges for EVs despite provision of “Green Miles” by various banks Source: Niti Aayog, E&Y, and UBI research High interest rates: The interest rates charged by the organised sector are favourable for a buyer with a good credit score. On the flip side the interest rates charged by captive and non-captive NBFC’s are above the 20% and range close to 24% for some buyers Despite introduction of “Green Miles” by various banks which offer 10-20 bps lower rate of interest of EVs vis-à-vis ICE 4W/2W loans, offtake has been low Low loan to value ratio: Providing low loan to value for buyers puts immense pressure on their pockets. This would also drive people to still buy ICE vehicles where the buyers can avail higher LTV for the vehicle. High insurance cost: EVs are charged higher insurance (c.1.5-2x vs ICE vehicle) due to the fear of technology failing and allocation for high repair costs. Lack of data on the lifetime of an EV deprives insurance companies from providing low insurance Resale Risk: Electric vehicles are being adopted at a gradual pace. The nascent ecosystem coupled with the depreciating battery performance may propel financing institutions to refrain from financing second sale EVs. Technology risk: The ever-changing battery technologies from lithium ion to graphene, sodium sulphur , sodium ion and zinc manganese poses a harder challenge for financers to fund the vehicle. The increasing number of EV fires in the country highlights the need for a fool proof technology

21. Financing of EVs: a key challenge as well as an opportunity Niti Aayog projects size of annual loan market for EVs in 2030 at INR 3.7 lakh crore Source: Niti Aayog and UBI research Size of EV Financing Market in India by 2030 Credit flow is higher in PVs and CVs with low EV penetration currently

22. Instruments to improve EV financing in India Source: IEA and UBI research

23. Annexure

24. EV-Transforming Global Mobility Government Policy and Initiatives The government had approved an outlay of Rs 25,938 crore under the PLI scheme to support the local automotive industry to make the transition to eco-friendly technologies. (Source ET 23.04.24) Auto PLI scheme extend financial incentives of upto 18% to boost domestic manufacturing It is estimated that in the five-year period, the PLI scheme will lead to incremental production of over Rs 2.3 lakh crore, creating more than 7,50,000 jobs. Further, this will boost India's share in global automotive trade. Eight automakers and parts suppliers--Mahindra & Mahindra, Tata Motors, Bajaj Auto, Ola Electric, Toyota Kirloskar Auto Parts, TVS Motor Company, Sona BLW Precision Forgings, Delphi TVS Technologies have invested and got approval under the PLI scheme. Acknowledging the key role India must play in the battle against climate change, the government has also aligned India’s EV sector growth with the United Nation’s SDGs The government’s aim is to ensure that 15% of all new vehicles sold in India within the next five years should be EVs.

25. EV-Transforming Global Mobility Government Policy and Initiatives – Ministry of Heavy Industries Ministry of Heavy Industries (MHI) -EV-related Schemes introduced by MHI include FAME, PMP, PLI ACC, and PLI for Automobiles and Auto Components. Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) Electric Mobility Promotion Scheme (EMPS) Phased Manufacturing Programme (PMP) Production Linked Incentive (PLI) Advanced Chemistry Cell (ACC) Scheme PLI for Automobiles and Auto Components Scheme to Promote Manufacturing of Electric Cars in India

26. EV-Transforming Global Mobility Government Policy and Initiatives – Ministry of Power Ministry of Power ( MoP ): MoP is responsible for facilitation of installation of Charging Infrastructure for EVs and related issues and defining Green Open Access Rules EV-related work undertaken by MoP Facilitation of installation of Charging Infrastructure for Electric Vehicles and related issues Charging Infrastructure for Electric Vehicles – Issuance of Guidelines and Standards Matters related to Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME India Phase II) Correspondence with State Governments/Ministries for promoting EV adoption Green Open Access Rules introduced in May 2023 CEA notified additional safety requirements for electric vehicle charging stations

27. EV-Transforming Global Mobility Government Policy and Initiatives – Ministry of Environment and Forest Ministry of Environment, Forest and Climate Change: This Ministry is responsible for notifying E-Waste (Management) Rules 2022, Battery Waste Management Rules 2022, and Hazardous Waste Management Rules 2016 related to EVs. On the question of electric vehicles (EVs), there are several applicable laws across the life cycle of the vehicles E-Waste (Management) Rules 2022: Battery Waste Management Rules 2022 Hazardous Waste Management Rules 2016

28. EV-Transforming Global Mobility Government Policy and Initiatives – Ministry of Finance Ministry of Finance ( MoF ): MoF is concerned with decisions on GST Rates, Income Tax under CBDT, and Customs Duty on EVs and related components Goods and Services Tax (GST) Rates under the GST Council GST on EVs (The GST rate on all EVs was reduced from 12% to 5%) GST on Lithium ion Batterie (The GST rates on EV batteries reduced from 18% to 5%) GST on EV Charges (The GST rate on charger or charging stations for EVs was reduced from 18% to 5%) Income Tax under the Central Board of Direct Taxes, Department of Revenue Under Section 80EEB, electric vehicle buyers are entitled to tax exemption up to INR1.5 lakh on the loan amount Customs Duty: Under Budget 2023-2024, the following have been envisaged for EVs and EV-related components and batteries Basic Custom Duty (BCD) for specified capital goods/machinery for manufacture of lithium-ion cell for use in battery of electrically operated vehicle (EVs) has been made nil IFCI, previously Industrial Finance Corporation of India is a development finance institution under the ownership of MoF , responsible for disbursement of demand incentives received from the Department of Heavy Industries (DHI) to various EV manufacturers under the FAME India Scheme - Phase II.

29. EV-Transforming Global Mobility FAME II Faster Adoption and Manufacturing of Electric Vehicles (FAME) was first introduced in April 2015, and Phase II was launched in April 2019. It aimed to push purchase of electric and hybrid vehicles by making them more affordable through financial support being offered under this subsidy scheme. Electric two-wheelers would get a subsidy of Rs 5,000 per kilowatt-hour (kWh) with a maximum limit of Rs 10,000 per vehicle under the scheme; the segment has a total outlay was Rs 333.39 crore. Rickshaws and carts would get a subsidy of Rs 5,000 per kWh with a limit of Rs 25,000 per vehicle, and the segment’s total outlay was Rs 33.97 crore. The per-kWh subsidy for L5 electric three-wheelers is also set at Rs 5,000, but it's capped at Rs 50,000 per vehicle with a total outlay of Rs 126.19 crore. FAME 2 subsidy was originally a 3-year plan and was to end on 31st March 2022, however, the government has decided to extend it till 31st March 2024.

30. EV-Transforming Global Mobility FAME II- Reasons for Discontinuation The FAME-2 scheme, has faced scrutiny and adjustments due to several reasons. Insufficient Domestic Value Addition: Indian electric vehicle (EV) makers have been under investigation for their eligibility for FAME-2 subsidies. Some companies faced issues related to sourcing imported parts for vehicle production or using outdated battery technology, leading to the suspension of subsidies. Compliance Challenges: Companies like Hero Electric and Okinawa Autotech allegedly violated the localization requirements of the scheme, resulting in the discontinuation of subsidies. Government Dissatisfaction: The government aims for homegrown innovation and value addition during manufacturing and assembly. The purpose was not served as per Government’s expectation. Going forward, the government may focus on other measures, such as ongoing production-linked incentive programs for battery manufacturing, tax cuts, and fee waivers.

31. Thank You ! The views expressed in this report are personal views of the author(s) and do not necessarily reflect the views of Union Bank of India. Nothing contained in this publication shall constitute or be deemed to constitute an offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity. Union Bank of India and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability regarding the same. KANIKA PASRICHA SUNEESH K R GUNASEELAN NIDHI ARORA RAJESH RANJAN S. JAYALAXMI JOVANA LUKE GEORGE AMIT SRIVASTAVA AJINKYA TAWDE KANHAIYA JHA MANEESH GUPTA ROHIT YARMAL RESEARCH TEAM