By Aman Kayal
Edited by Nisha Gokhale
Are Electric Vehicles (EV) economical?
At first glance, EVs are definitely exorbitant compared to normal fuel run vehicles. However, EVs have significantly lower servicing costs, and unlike Internal Combustion Engines (ICEs), where service costs rise sharply with age, EVs have much lower service cost escalation over the same period. EVs typically have far fewer moving parts compared to ICEs and are consequently cheaper in terms of replacement due to wear-and-tear.
The concept of EV was started in 1890 but wasn’t very practical. Over the last few decades, the world’s focus has shifted from hybrid vehicles to fully electric cars and trucks and finally towards EV. In the 21st century, due to major issues like global warming and renewable energy, EVs have become extremely popular. When Tesla launched its Roadster, it was an eyecatcher. Besides Tesla there have been many other companies manufacturing EVs such as China-based NIO which emerged to become the largest EV manufacturer in the country.
Other car manufacturers like Hyundai, Xpeng INC, Li Auto, and Volkswagen AG have followed. 2020 has provided a plethora of golden opportunities to investors.
A quick glance at the current figures can substantiate this:
Tesla’s YTD is 9 times higher meaning if you would have invested USD 25000 at the beginning of 2021, by now you would have USD 225,000
For NIO, China’s largest EV manufacturer, YTD returns are around 1000%. So, if you invest USD 25000 at the start of 2021, by now he would have $250,000.
The figures clearly show that the EV market is an attractive industry for investors, especially for the younger generation. It is one of the major sectors to invest in for long term returns. Even the emerging markets and developing countries have started encouraging the promotion of EVs. Certain residential and commercial buildings are being equipped with EV charging stations in their basements for these vehicles.
Why choose EVs over fuel cars?
Convenience: EVs are convenient since they don’t take long to charge and can even be charged in your building basement. While they are not commonly observed today, a charging station in every building may soon become a reality considering the rapid pace at which the EV industry has been growing.
Economic Efficiency: Since EVs run on batteries and electricity, the maintenance cost is not as high as that of ICEs, which attracts a person to invest in EVs. As EVs are able to conserve energy through regenerative braking, their total cost of ownership becomes much lower than that of ICEs where mileage drops due to engine idling in traffic.
Even the government provides certain incentives to EV riders for going green. Electric vehicle owners can break even on the total ownership costs over 2-3 years as the operational cost of EVs is much lower than petrol vehicles.
The demand incentive on electric two-wheelers was up to Rs.30,000 till May 2021. With the revisions in June 2021, the prices of all electric two-wheelers were further decreased, with a 50% increase in the tax incentive. The government has decided to provide a Rs. 1.5 lakh additional income tax deduction for interest paid on loans used to purchase electric vehicles.
Sustainability: Compared to the carbon footprint of petrol (2.39 kgs per lakh litres) and diesel (2.62 kgs per lakh litres), EVs produce zero direct emissions.
Performance and Range Improvements: Ever since the launch of the first EV, the automobile makers have refined their assembly process. The result of these refinements is the innovation of Electric Vehicles that can run thousands of miles at one charge. The performance of these EVs has drastically improved over the past few years, with some models like Tesla’s Model S, Volkswagen, NIO and many more being able to surpass the conventional sports cars.
Economic benefit to the state: EVs provide economic benefits to the state by reducing fuel costs and shifting consumption away from imported oil to more locally produced electricity sources. The fuel savings become additional disposable income that could be spent on the local economy.
Development of EV Infrastructure: The government aims to set up 200 charging stations every year so that there will be a charging station within every 3 km by 2024. This would incentivize commercial centres to adapt and set up charging stations in the parking area that can autonomously operate from the main electric grid.
Economics behind EV’s in India
E-Ricks have perfectly catered to the needs of even the underprivileged. Currently, 80% of this market is unorganized and is based on lead acid batteries. The E-ricks have become popular in many cities in India and are a very good substitute for CNG run auto rickshaws and kaali-peeli taxis.
While EVs have emerged as a popular choice, certain factors have hindered the growth of this industry one of which being affordability. When talking about passenger vehicles, at the current battery prices, it is not possible to offer an electric car with good performance in the sub INR 1 million price range – which is the core of the current market. Thus, barring the early EV models, electric cars in India have been launched in mid-premium price range.
With technological advancement, people would want to shift from fuel driven vehicles to EVs. This doesn’t include only cars but also buses, scooters and bikes that run on electricity. Commercial vehicles including buses are expected to lead EV adoption in the commercial segment. Electric vehicles help to reduce greenhouse gas emissions and fossil fuel consumption. Lowering the CO2 intensity of power generation would be important to ensure that higher electric vehicle deployment is combined with more rapid decarbonization of electricity generation. To decarbonize the automobile sector, the government will need to scale investment in grid infrastructure to allow DISCOMs to operate the power system.
In the following decade, we shall see a gigantic expansion in the number of Electric Vehicles on streets. Factors like government support, rising innovation and changing public opinion are bringing numerous drivers to switch over to clean, completely electric vehicles.
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Bhattacharyya, K. (2020, July). The Economics of Electric Vehicles in India. https://www.avendus.com/india/avendus-eye/the-economics-of-electric-vehicles-in-india
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Phokela, R. (n.d.). Economics of Owning an Electric Vehicle. Express Drives. https://www.financialexpress.com/auto/electric-vehicles/cost-of-electric-two-wheeler-ownership-india-ather-450x-range-price-tvs-iqube-bajaj-chetak/2353114/