BANGALORE -- India's ambition to get more electric vehicles on the road has been given a boost by investment from one of the country's biggest construction companies in electric bus maker Olectra Greentech, in a deal worth around $100 million.
Megha Engineering & Infrastructures, Ltd., or MEIL, took a controlling 50.1% stake in Olectra in August, according to documents filed with the Bombay Stock Exchange. The move reflects the infrastructure company's desire to cash in on several central and state government projects promoting the use of electric buses in public transportation.
Bidding for the project, which includes construction of bus depots, is expected to begin within the next few months. The building work is likely to be finished by next June, with the first electric buses to hit the streets a month later.
"Since ... [MEIL] has invested in a huge way in Olectra, they will be involved in the entire process of manufacturing the buses," said Anand Swaroop, Olectra's chief operating officer.
Olectra had previously forged a deal with China's BYD, a battery maker that is also the world's largest electric vehicle company, to build electric buses in India.
The Indian government has voiced ambitions for 30% of all vehicles to be electrically powered by 2030, and has introduced a significant incentive program called Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles India, or FAME. It provides subsidies worth around 60% of costs to cities across India for the purchase of electric vehicles. A number of established bus manufacturers, including Ashok Leyland, Tata Motors, Eicher Motors and Mahindra & Mahindra, are taking part in the program.
However a lack of proper infrastructure is an impediment to growth.
Earlier this year, Olectra received a government contract to supply 290 electric buses across the state of Telangana, in southern India, and in big cities such as Bangalore and Mumbai, under the FAME program. The program "has encouraged all the relevant players to invest in the EV business in India," said Ketsu Zhang, executive director of BYD's Indian unit.
The booming electric vehicle market in India has caught the eye of local companies. According to the Society of Manufacturers of Electric Vehicles, sales rose 37.5% in 2016 versus the previous year to 22,000 units. TechSci Research, a consultancy, forecasts India's electric bus market will grow at a compound annual rate of around 124%, surpassing $667 million by fiscal 2023. Kedar Soman, consultant and a partner at PlugInIndia, which works with electric carmakers to promote electric transport, said the sector will continue to grow, thanks to advances in battery technology and favorable government policy.
In addition to promoting the manufacture of electric vehicles, the government has a pilot project to convert diesel buses to electric. The program will be expanded if the pilot project goes well. The transport minister, Nitin Gadkari, has said the government plans to develop low-cost, high-efficiency rechargeable lithium-ion batteries through the Indian Space Research Organization.
The electric car industry is assuming greater importance in light of India's pledge to reduce its carbon emissions by 33% to 35% versus 2005 levels by 2030. An Indian government think tank, NITI Aayog, said in a report that adopting electric vehicles and promoting shared mobility could save the country $60 billion in fuel costs.
PlugInIndia's Soman said there is a need to balance supply- and demand-side incentives to shift people to electric mobility. In the U.S., authorities have introduced carbon credits and the companies that do not make emission-free vehicles must pay those who do, he said.
A McKinsey & Co. report explains how Norway, the world leader in electric vehicle adoption, uses multiple initiatives to promote electric cars by offering lower road taxes, free parking, special transport lanes, discounted road tolls and free battery charging points, among other incentives.
Many industry experts argue that to boost the industry and increase adoption of electric buses in India, the market must be developed. According to Ashwin Mahesh, co-founder of Lithium Urban Technologies, operator of the country's largest fleet of electric vehicles, there must be more electric buses to grow the market. This can only be achieved by liberalizing imports, he believes. At present, tariffs are quite high. "I believe that 'Make in India' should be preceded by 'Sell in India,'" Mahesh said.
There is also the problem of India's inferior battery technology, said Olectra's Swaroop.
He points out that while people in India talk about making batteries with a capacity of 100-120 kilowatt-hours, BYD is looking at 380 kwh. "This has a bigger advantage in terms of mileage. Otherwise, after traveling every 30 km to 40 km, you end up charging, which takes about three to four hours' time. Therefore, technological advancements, at least to facilitate longer travel in electric buses, are necessary," he said.
While Olectra engineers are responsible for designing the buses, BYD will bring "experience and key components" from China, such as batteries, BYD's Zhang said. He added that BYD will make India a production hub as well as a research and development center for all of South Asia.
According to a report by consultancy Grant Thornton, batteries account for almost 50% of the total cost of an electric vehicle. Because India does not have sufficient deposits of lithium to make such batteries domestically, it must look for alternative supplies. Swaroop said that as a large multinational company, BYD has immense expertise in the field, making it an ideal partner.
Industry insiders say there are clear benefits of aligning with companies that deal exclusively in electric cars. "If you look at large manufacturers of electric vehicles around the world like BYD or Tesla, they do not have a legacy of producing any other kind of vehicle before that. They don't have to worry about protecting their existing industry, and therefore it helps them grow faster with the newer technology," said Lithium Urban Technologies' Mahesh.
Investors appear like the direction the company has taken. Over the last two years, Olectra's stock price has risen sevenfold from $0.34 to $2.84, despite its lack of experience making electric vehicles. In the year ended last March, most of its revenue came from insulators sold to infrastructure companies.