Large-scale deployment of Plug-in Electric Vehicles (“PEVs” or “EVs”) is often touted as an effective option to de-carbonize transport systems and reduce dependence on conventional vehicles (Internal Combustion Engine vehicles or “ICEVs”) that use fossil fuels. Not only are EVs potentially cleaner than their equivalent ICEVs, they are also noise-less and typically have lower operating costs.

EVs can be cleaner than their equivalent ICEVs in two ways: They have zero tail-pipe emissions, leading to cleaner air in the streets. Their wide-spread use can also result in lower green-house gas emissions, depending on whether the fuels used for electricity generation are less polluting than the ones used for transportation.

A Tesla Roadster, Reva i and Ford Th!nk electric cars parked at a free parking and charging station near Akershus fortress in Oslo, Norway. Pic: Wikimedia

It is little wonder then, that policymakers around the world are interested in promoting the uptake of EVs. As of 2013, more than 20 countries in Europe, North America and Asia already have various incentives such as cost subsidies and tax-breaks in place. However, almost all cases, the policies have failed to yield desired results with only a few hundred EVs being sold in each of these countries. A range of barriers continue to inhibit the uptake of EVs, the attractive policies and incentives notwithstanding. 

The dilemma for policymakers is that EVs continue to be an expensive mitigation option compared to the spectrum of other renewable and clean technology options available, particularly to a resource-rich country like India. Should they support the (expensive) development of EV markets now in anticipation of a disruptive technological breakthrough, or should they allow market forces to take over and determine what the cheapest and most effective mitigation option would be?

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EVs are expensive. The upfront cost of an EV is significantly higher than that of a comparable ICEV. Even with lower fuel costs, the total cost of owning an EV over a vehicle lifetime of 10-12 years is still much higher than that of a comparable ICEV, rendering the EV economically unfeasible.

As an example to illustrate how lifetime costs can be calculated, let us compare the Mahindra Reva, which is probably the only commercially sold EV in India to the Tata Nano, an ICEV that runs on petrol. While it may require an engineering expert to determine whether these two models are indeed comparable (they are probably not), some crude criteria can be used to justify the comparison. The maximum torque of both models is similar (53Nm v/s 51Nm), Kerb weight is about the same (700 kgs vs 600 kgs), Vehicle length is in the same range (2,650 mm v/s 3,100 mm) and so on.

The following assumptions are made for the estimation of the lifetime costs: Reva Ex-showroom price of INR 445,000, Nano Ex-showroom price of INR 120,000; Average daily driving distance of 25 kms, which translates into an annual driving distance of about 9,125 kms; Fuel efficiency of 15 kms/liter of petrol for the Nano, Fuel efficiency of 60 kms per full charge (14 kwh of energy) for the Reva; Pump price of petrol is INR 70 per liter, Retail electricity tariff of INR 5 per kWh; These assumptions translate into an annual fuel expense of about INR 42,500 for the Nano and about INR 10,600 for the Reva; The lifetime costs are estimated over a 10-year period.

Because the costs are incurred at different time intervals, they need to be discounted to their present value for any meaningful analysis. At a 5% discount rate, the lifetime ownership cost of the EV is about 55% higher than the ICEV’s and at a 10% discount rate, it is about 86% higher. Obviously, many of the assumptions are relatively arbitrary and need further refinement. For example, the two models are not really comparable; neither the cost of petrol nor electricity would remain constant over the entire period; maintenance and repair costs have not been considered; a probable drop in fuel efficiencies of both models has not been considered; a more scientific assessment of driving distances is required and so on. In general, it can be inferred that higher the driving distance and lower the discount rate, the more competitive EVs become.

It is, however, unclear what the exact impact of fuel subsidies are on the commercial feasibility of EVs. Electricity tariffs differ from state to state in india and are still not priced at market rates in many places. At the same time, liquid fuel prices, particularly those of diesel, are also heavily subsidized. This distorts the economics of both EVs and ICEVs and makes a cost-benefit analysis extremely complicated.

EVs do not have adequate charging infrastructure support. EV charging points are currently available only at designated points such as home, office or other selected locations, unlike the ubiquitous petrol stations that can be found within a 5-10 kilometer range in most cities. This leads to ‘range anxiety’, which inhibits the EV user from planning relatively long drives for fear of running out of ‘charge’. Numerous consumer surveys in different parts of the world have shown that range anxiety is a real concern among EV buyers, even though average city distances are typically much lower than what the manufacturers claim the EVs are capable of on a single charge.

India, meanwhile, got its latest variant of electric vehicles as Mahindra Reva launched the new Mahindra e2o on 18 March, 2013. The all-electric zero-emission vehicle is being touted by the manufacturers as the 'future of mobility' - it enables users to carry out self-fueling through any 15 amp plug point at home or at their workplace and boasts a first-of-its-kind remote emergency charging option, that can be activated through a smart phone app. Pic: Mahindra

In addition, EVs require about eight hours for a full charge, which means that EV users can afford to charge their cars only when they are sleeping or at work. A fast-charging option that can charge batteries up to 80 per cent of their capacity in about 10 minutes has recently become available, although prolonged use of the fast-charger can shorten battery life. Provision of charging infrastructure on a commercial basis can be a viable business model given adequate volumes of operating EVs, but the private sector is reluctant to invest now in anticipation of high uptake of EVs in the future.

Clearly, EVs need to become more cost-competitive before they can be accepted more widely by the buying public. For policymakers in India who are under pressure to reduce crude oil imports and also plan for a carbon-constrained world in the future, EVs represent an important technology option. However, EVs are only as clean as the grid they draw electricity from and the Indian electricity grid is still heavily reliant on dirty coal and not as clean as say, Denmark or Singapore. Nonetheless, the energy mix is bound to change in the future and in any case, it is easier to control emissions at a single source (the electricity generation plant) rather than at a million mobile sources (moving vehicles running on dirty fuel).

From the above discussions, it can be inferred that EVs are socially desirable and can result in significant operating savings from a private ownership perspective, but the prevailing cost structures inhibit EV markets from developing naturally. Naturally, it is argued that governments should step in to support EVs either by subsidizing the cars to make them cost competitive with ICEVs and/or by sponsoring charging infrastructure to remove other associated barriers. Many governments around the world, including in India, have adopted this line of reasoning and have announced various incentives.

The dilemma for policymakers, though, is that EVs continue to be an expensive mitigation option compared to the spectrum of other renewable and clean technology options available, particularly to a resource-rich country like India. Should they support the (expensive) development of EV markets now in anticipation of a disruptive technological breakthrough in the future, or should they allow market forces to take over and determine what the cheapest and most effective mitigation option would be? Another option would be to capture lower-hanging fruit such as development of efficient public transport systems that will reduce reliance on privately owned cars, automatically making the source of emissions more centralized and manageable.

A somewhat different, but related policy dilemma is whether poor, developing countries like India should assume global leadership and invest precious money in expensive ideas like EVs, or instead focus on providing basic necessities of life to millions of people below poverty line.

Regardless of whatever policy the Indian government adopts, it is clear that large-scale deployment of EVs is many years away and policymakers have to focus on other, more feasible, mitigation options for the near term. Also, there is little point in promoting EVs without first ensuring reliable, stable and round-the-clock power supply. Otherwise, EV buyers will be left with expensive cars parked in their garages without adequate availability of fuel to charge them up!