Widespread adoption of electric vehicles poses a financial risk to India's leading automotive firms unless they can adapt to the change.
This was the main finding of a new report from Imperial College Business School, which highlights how India's automotive and industrial sectors need to prepare for the impact of electric vehicles.
The report suggests that if sales of electric vehicles rise to 25% of all vehicles sold in India, there could be a financial risk to automotive companies who still rely on traditional car manufacturing for making profits.
The authors also indicate that if electric vehicles account for 25% of all vehicles on the road in India, electricity usage in the country could rise by almost 60% and would require significant upgrades to the electricity grid.
Meeting this target through coal power capacity risks cancelling out some of the climate benefits, so India's distribution companies would need to develop decarbonisation investment plans in advance, while meeting some of the increased demand through renewable sources.
"India has the opportunity to cut its carbon footprint substantially if large numbers of drivers move to electric vehicles, but there needs to be the right infrastructure and renewable energy capacity in place for the country and the climate to benefit." Dr Alexandre Koberle Honorary Senior Research Fellow, Centre for Climate Finance & Investment
In addition, the researchers predict that as many as 6.7 million new charging points may be needed by 2030 to meet the demand for electric cars. This would require significant government and private sector investment. To help avoid overloading the grid, policy changes such as time-of-use tariffs may be required to incentivise charging at low-demand times.
"India has the opportunity to cut its carbon footprint substantially if large numbers of drivers move to electric vehicles, but there needs to be the right infrastructure and renewable energy capacity in place for the country and the climate to benefit," said Dr Alexandre Koberle, Honorary Senior Research Fellow at the Centre for Climate Finance & Investment at Imperial College Business School, who authored the report.
"India has already made strong progress in addressing the impact of carbon emissions caused by transport. By working with the Indian government and local partners, we hope our research will provide policy makers with useful insights that could help the country meet its climate change targets."
I think she's going to quick you a quick ring about reframing the quote slightly to acknowledge the work that's already been done in India in this sector, and that their research will add to that.
Energy boost
India's energy sector accounts for 75% of the country's emissions and road transport is the second-largest contributor. To help reduce the impact of emissions caused by transport, in line with the country's decarbonisation commitments, the Indian government has pledged to increase its investment in renewable energy to 50%, in addition to boosting the production of electric vehicles and battery manufacturing.
A rise in vehicle-led electricity demand would go hand-in-hand with a drop in demand for combustible fuels, shifting the focus of the automotive sector's emissions to the manufacturing process. Low-carbon steel could attract greater attention in this scenario, putting pressure on India's steel industry.
Automotive impact
Alongside changes to the electricity grid, the researchers looked at the impact of a rise in electric vehicle production on India's car manufacturers. They found this would be different for each of the country's three largest producers: Maruti-Suzuku, Mahindra and Mahindra (M&M) and Tata Motors, who respectively control 5%, 10% and 70% of the electric vehicle market.
As market leader, Tata would benefit from a rise in electric vehicle production, while M&M stands to be less significantly impacted, and Maruti-Suzuki faces significant cash flow risk unless it is able to boost its market share.
More broadly, the researchers noted that industrial firms in the automotive sector may face a greater impact from a rise in electric vehicles than vehicle manufacturers themselves. This will require significant investment to pivot to building electric vehicle components.
"These emerging risks could be mitigated by providing incentives for firms to increase their electric vehicle market share," said Dr Koberle. "One approach would be to offer sustainability-linked bonds – financial instruments linked to specific ESG goals.
"For example, interest rate reductions could be offered for a company increasing its share of electric vehicle sales, and stricter repayment terms could be imposed for failing to expand charging infrastructure by an agreed proportion. This approach would help to align financial incentives and environmental goals, rather than the two pulling in opposite directions."
The report: Driving Decarbonisation: Cross-Sectoral Second Order Impacts of High EV Penetration in India is authored by Dr Alexandre Koberle and Dr Gireesh Shrimali, Head of Transition Finance Research at Oxford Sustainable Finance Group at the University of Oxford.
