The price difference between battery-powered and fossil fuel-run passenger vehicles is narrowing fast, which industry executives expect will push more Indians to choose the greener option when they buy cars and SUVs.
The average price of an electric passenger vehicle was well over two times (137%) more as recently as in 2020 compared with a similar variant run on petrol. That gap has now reduced to 73%, according to data from automobile consultancy firm Jato Dynamics.
In this period, conventional passenger vehicles with internal combustion engines (ICE) have become costlier owing to tightening of emission regulations that required new modifications in the vehicles. At the same time, government sops and reducing battery cost are making EVs more affordable. The trend, said industry executives, is likely to continue.
“We have seen that ICE prices are inflationary in nature and EV prices are deflationary,” said Shailesh Chandra, managing director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility. “The trend is likely to continue as ICE prices are set to increase owing to regulatory changes such as BS-VI PH2 (emission standards).”
Battery cost, which accounted for as much as 40% of an electric vehicle’s price, is reducing, with raw materials like lithium used in the manufacturing of batteries becoming cheaper. Automakers are passing on this benefit to consumers. “Owing to the secular trend of lowering battery prices, EVs are likely to continue with the deflationary price trend. Thus, we will witness that the price gap between ICE and EV will further reduce in future,” said Chandra.
With the narrowing price gap, adoption is expected to increase. EV at around 60,000 units accounted for 1.1% of India’s total passenger vehicle sales in fiscal 2023, compared with 0.6% the previous year. This share is expected to increase to 3-4% by 2024-25 and 17% by 2030. “The tipping point will be when sticker prices of electric vehicles are closer with gasoline (petrol) cars for adoption to exponentially increase, even though total cost of ownership parity may be achieved earlier,” said Maruti Suzuki executive director Shashank Srivastava.
Economic Value
The price difference between electric and petrol-driven variants is less in SUVs than in hatchbacks. That is why adoption is expected to be faster for bigger vehicles, said Srivastava.
For faster EV adoption, the acceptable minimum driving range with a fully charged battery is more than 200 km. A battery pack of the right size and capacity will be needed to service this range, irrespective of the vehicle segment. Therefore, from the customer’s perspective, the percentage of premium to be paid for a lower segment EV turns out to be higher when compared with its ICE option, said Tata Motors‘ Chandra. So, EVs can achieve faster price parity with their ICE counterparts in higher segment cars and SUVs, he added.
For consumers, the fundamental buying rationale is economic value. Today, the highest adoption of EVs is at the price range of ₹10-18 lakh. However, very few models are available in this “sweet spot”, according to manufacturers.
Clearly, the faster adoption of EVs is co-related to pricing, technology-driven features, value and delivery of a healthy battery range, said Vijay Nakra, president of the automotive division at Mahindra & Mahindra.
Going forward, the market will see most models being manufactured on platforms developed exclusively for electric vehicles, which would help further reduce the price, he said.
Rajeev Chaba, president of MG Motor India, said the reduction in battery raw material cost was helping EVs narrow the price difference with ICE vehicles. “So we hope that the price of lithium keeps coming down and we can see a reduction in acquisition price,” he said. It is projected that in the long term, battery cost will come down and the EV powertrain costs will be similar to that of fossil fuel ones, said Jato Dynamics president Ravi Bhatia.
