Updated analysis of incentives for electrifying India’s four-wheeler ride-hailing fleet
Are electric four-wheelers becoming more cost attractive as ride-hailing vehicles in India?
To quickly answer the question we pose in the title: yes. We recently published an updated analysis comparing the 5-year total cost of ownership (TCO) of a four-wheeler battery electric vehicle (BEV) if used for ride-hailing in select Indian cities to gasoline, diesel, and compressed natural gas (CNG) vehicles using 2020 data. Results show the cost difference between the BEV and the conventional vehicles that’s found with 2019 data shifts fairly significantly when you look at 2020 data. The paper has the full details, but there are a few points to highlight here.
Between April 2019 and March 2020, only 0.15% of new passenger cars registered in India were BEVs, and one of several reasons for the slow uptake has been a lack of models for sale. But there are now an increasing number of BEVs coming on the market and there were eight models at the beginning of 2021 compared to just two in 2019.
To find out what effects these new models are having, we took our 2019 study and performed the analysis again using 2020 data. Here we’ll start by comparing the results for the BEV Mahindra eVerito D2 and the gasoline Maruti Suzuki Dzire LXI. The costs analyzed include vehicle purchase and financing costs, costs of insurance, costs of fueling and maintenance, taxes and fees, opportunity cost of fueling, and purchase incentives based on central and state policies. To enable a direct comparison between results for 2019 and 2020, we made two changes to the fueling-cost related assumptions in the 2019 study and recalculated the TCO and cost per kilometer values of 2019 based on them. The first change is a 25% increase in the certified energy consumption value per kilometer of use to reflect real-world fuel efficiency numbers in India and the other is use of a 6-month average fuel price for diesel, gasoline, and CNG, instead of using a single day’s price.
Figure 1, below, shows the average cost per kilometer (km) values for 2019 and 2020. With the latest assumptions, our analysis finds that in 2019, a four-wheeler BEV operated for ride-hailing in the cities of Delhi and Hyderabad cost significantly more than comparable gasoline, diesel, and CNG cars over a 5-year ownership period. This is despite the central government’s Faster Adoption and Manufacturing of Electric Vehicles (FAME II) incentive in place for BEV purchasers. In 2020, though, the 5-year TCO shifted in Delhi and is now in favor of the BEV compared to gasoline vehicles. The cost of the BEV Mahindra eVerito D2 in Delhi dropped from INR 8.8 per km in 2019 to INR 5.8 per km in 2020, a 34% decrease.
What made the BEV cheaper in Delhi in 2020? This can be attributed to a reduction in the manufacturer’s base price, which also reduces the finance cost, and the approval of the Delhi electric vehicle policy in 2020, which includes a purchase incentive of INR 10,000 per kilowatt hour of battery capacity, subject to a maximum incentive of INR 1.5 lakh per vehicle. Meanwhile, for the gasoline Maruti Suzuki Dzire LXI in Delhi, the cost increased from 7.0 per km in 2019 to INR 7.3 per km in 2020. As a result, in 2020, compared to the gasoline model, the BEV Mahindra eVerito D2 becomes cheaper by INR 1.5 per km. This is a significant improvement over 2019.
In Hyderabad, even though there are no state government incentives similar to Delhi’s, the per-kilometer cost of the BEV Mahindra eVerito D2 reduced by 20% in 2020 compared to 2019. The per-kilometer cost for the gasoline Maruti Suzuki Dzire LXI, meanwhile, increased from INR 7.4 per km in 2019 to INR 7.5 per km in 2020. As a result, the BEV Mahindra eVerito D2 becomes cheaper than the gasoline car by INR 0.3 per km in 2020. In 2019, the same BEV was more expensive than the same gasoline vehicle model by INR 1.6 per km.
Note that while Delhi’s state purchase incentive makes the BEV highly cost-competitive compared to the gasoline car, our analysis showed the BEV was still more expensive than the CNG car analyzed in 2020 in both cities. So, how can the residual cost gap be eliminated or reduced so that ride-hailing drivers may find BEVs to be equally as cost-attractive as the CNG alternative? We looked at some additional policy measures supplementing existing policies that can further reduce or eliminate the cost difference between the BEV Mahindra eVerito D2 and the CNG Maruti Suzuki WagonR LXI in 2019, and between the BEV Mahindra eVerito D2 and the CNG Maruti Suzuki Tour S in 2020. Although the CNG vehicle models for 2019 and 2020 are different, the additional policies considered are the same. These include deployment of 50 kilowatt direct current (DC) fast charger infrastructure; state governments matching the central FAME II purchase incentive; interest rate subvention on loans for electric vehicles; discount on Insurance Regulatory and Development Authority Act (IRDAI) insurance rates, parking charges, and tax collected at source for commercial passenger BEVs; rebates for ride-hailing BEV cab drivers on trips taken; bulk purchase discounts for ride-hailing BEV cab drivers; and an aggregator incentive for ride-hailing BEV cab drivers to compensate for the opportunity costs. Figure 2 shows the effects of these additional measures for the city of Hyderabad in 2019 (top) and 2020 (bottom).
Out of these additional measures—none of which are in place yet—the state upfront purchase incentive matching the central FAME II scheme, deployment of fast chargers, and the aggregator incentive have the largest impacts in reducing the cost differential in both 2019 and 2020. Additionally, the interest rate subvention on loans taken for the purchase of a BEV has a notably positive effect in reducing the cost gap in 2020. The overall effect from all of the additional measures adopted in 2020 results in the BEV Mahindra eVerito D2 being cheaper than the CNG vehicle by INR 1.63 per km in Hyderabad. In 2019, the BEV Mahindra eVerito D2 was costlier than the CNG vehicle by INR 1.37 per km, even after considering the additional measures.
Consumer preference for BEVs over CNG vehicles is important due to India’s focus on achieving zero-emission fuels for domestic transport. The Government of India has set a target of 30% share of electric vehicles in new passenger car sales by 2030. All types of internal combustion engine (ICE) vehicles, including Bharat Stage VI CNG vehicles, generate harmful tailpipe air pollutant emissions. And even though CNG vehicles have lower tailpipe carbon dioxide emissions than gasoline cars, their well-to-wheel greenhouse gas (GHG) emissions are similar to that of gasoline vehicles. Even after considering India’s coal-dominated grid in the 2021–2035 period, BEVs will offer a 25%–35% reduction in GHG emissions compared to their ICE counterparts. Therefore, achieving India’s climate and energy security goals, including its Nationally Determined Contribution under the Paris Agreement, will require a shift away from ICE vehicles to electric vehicles.
As shown through this analysis, policy measures could drive faster electric vehicle adoption in India’s four-wheeler ride-hailing fleet by reducing the cost differences between BEVs and ICE vehicles. For BEVs costing less than INR 14 lakh and of comparable range and charging durations as the BEV Mahindra eVerito D2, these additional measures are sufficient to bring per-kilometer cost parity with conventional cars within reach. In a forthcoming briefing, we’ll show how India can bring to bear additional non-fiscal instruments to make the transition of the ride-hailing fleet to electric drive happen. Stay tuned!