India’s Auto Industry: Mapping the Course to Net Zero by 2070
Vaibhav Pratap Singh and Priyadarshini Alok
Executive Summary
India has committed to achieving net-zero emissions by 2070 (PIB, 2022). Decarbonising the transportation sector is critical to this mission, given that it was responsible for about 13 per cent of the country’s total greenhouse gas (GHG) emissions in 2016 (UNFCCC, 2021). This report focuses on the financial implications of realising a net-zero transition in the auto sector — the investments and costs involved and potential gains. Decarbonising this sector could create an opportunity for growth in the mobility industry, particularly in the case of road-based electric vehicles (EVs). The auto sector transition could lead to an overall market creation of more than USD 19.7 trillion by 2070, with cars accounting for 63 per cent of the market and contributing nearly USD 15.5 trillion.
The report is based on a net-zero pathway outlined in Table 1, which provides the automobile sales scenario from 2025 to 2070 as identified by Chaturvedi and Malyan (2021) and Singh and Sidhu (2021). The report investigates the costs associated with achieving net-zero emissions, and, particularly, the investments original equipment manufacturers (OEMs) will have to make to keep pace with the transition. The analysis further evaluates the revenue opportunities that transitioning offers across vehicle segments for OEMs and the market value of these new vehicles, based on their estimated ex-showroom prices. Additionally, the report analyses the demand for new and replacement batteries, which currently drive the majority of EV costs, and the necessary investments to produce them locally. The report also presents potential revenue for the government through tax collection on auto sales. Moreover, it delves into the financing required until 2070 to enable consumers to purchase these vehicles and evaluates some financing solutions to facilitate a smooth transition, particularly for new vehicle types like EVs.
Key Findings
Our analysis suggests that OEMs in various vehicle sectors will need to invest USD 323 billion to produce electric vehicles alongside existing technologies. This investment could generate revenue of USD 14.1 trillion for OEMs until 2070. Additionally, the automobile sector’s transition could potentially lead to revenue collection of USD 4.1 trillion in Goods and Services Tax (GST) for the exchequer during 2020–2070.
Further, to meet the calculated annual battery demand of around 1,716 GWh by 2070 and achieve complete domestic production, manufacturers will have to invest USD 196 billion until 2070. Eventually, by the year 2070, the battery demand for all EVs in the country will be met locally by 172 giga-factories, of 10 GWh capacity each. To meet the demands locally, this could begin with building a single factory around 2025.
Financial Challenges and Solutions
At the same time, to achieve this transition, India would require vehicle loans worth USD 9.6 trillion until 2070. The volume of auto loans for new vehicles would need to increase over 20 times from around USD 20 billion in 2020 to over USD 410 billion annually by 2070. Auto loan portfolios would need to grow at an annual rate between 6–18 per cent over the next two decades. Policymakers and regulators will need to provide support to ensure that financing keeps pace with sales, or else the transition may falter.
To promote the sales of new categories of vehicles – like electric vehicles – across all sections of society, newer kinds of auto loans with longer tenures and at competitive costs are necessary. We recommend that to finance this transition, policymakers, financial institutions, OEMs, and other stakeholders work on solutions, such as first-loss guarantees for financial institutions and lines of credit for EVs, and other solutions. The report proposes both short- and long-term solutions to improve the flow of finance to support EV growth in the country.