Viewpoint: India’s EV uncertainty confuses investors

India continues to oscillate between oil-fuelled cars and electric vehicles (EVs), driven on short-term market factors and external political factors, rather than focusing on a coherent policy on EVs. The lack of guidance is confusing investors in the thermal fuel, battery and EV industries.

The latest flip-flops include introducing incentives for hybrid cars, which were previously subjected to steep taxes; expanding biofuels production through using food crops as feedstock; and focusing on gas- and LNG-powered vehicles – all of which are meant to replace gasoline and diesel.

But at the same time, the government is aggressively courting foreign oil companies to invest in refineries, retail outlets and strategic storage facilities. It is unclear whether all the different fuels can coexist in the absence of a well-thought-out energy policy.

India early last year announced plans to totally switch to EVs by 2030. But it backtracked on this earlier this year and pitched a proposal to state-owned Mideast Gulf oil firms Saudi Aramco and Abu Dhabi's Adnoc to build the country's biggest refinery, the 1.2mn b/d Ratnagiri project on the west coast, seemingly doubling down on oil-based transport fuels.

Spoilt for choice Prime minister Narendra Modi in November announced his vision for "a gas-based economy" with plans to increase the number of compressed natural gas stations (CNG) sevenfold to 10,000 in the next 10 years from around 1,470 stations now.

The government additionally introduced a policy for biofuels in May, with targets to implement a 10pc and 5pc blend of ethanol and biodiesel , respectively, in the transport fuel mix by 2022, to cut the country's growing dependence on crude imports. Methanol is also included in the biofuels policy.

Delhi has now expanded the ethanol blending policy to allow surplus maize, jowar and bajra and waste of fruits and vegetables to be processed into ethanol for blending with gasoline, to enable state-controlled oil firms to meet the 10pc blending target by 2022, up from around 4pc now.

It may be a sensible hedge to invest in multiple fuel sources to power the country's vehicles. But automotive manufacturers and refiners are complaining about the lack of a clear energy policy that they say is preventing them from making investment decisions.

The muddled policy has more to do with politics and job creation than reducing pollution. Delhi's concerns over oil use were aggravated earlier this year when crude prices jumped to $85/bl, pushing pump prices of gasoline and diesel to record highs and making the BJP government unpopular as it prepares for federal elections next year. The high crude rates also pushed the Indian rupee to record lows against the US dollar.

The government is well aware that investments are being made only for businesses that produce and sell fuels, such as refineries and retail outlets, and consumers of fuels such as diesel. Battery makers and EV producers have not shown much interest in building capacity in India, with US EV manufacturer Tesla opting to build a production facility in China instead.

Elections in focus Impending elections and a lack of private investment have forced the government to rely on state-controlled oil companies to announce projects to boost GDP growth and create jobs. But these projects are focused primarily on fossil fuels. Investments into refineries and crude storage facilities have eased concerns of automakers, the country's second-largest employer, over building more factories in India to produce cars with internal-combustion engines.

Refineries and retail outlets are also attractive investment options for foreign oil companies that are keen to expand in the world's third-largest oil consumer. Saudi Aramco and Adnoc have agreed to take a combined 50pc stake in the 1.2m b/d refinery and associated 18mn t/yr petrochemical complex at Ratnagiri.

The government has also granted BP a licence to set up and operate more than 3,000 retail fuel outlets in the country. It is planning to ease restrictions on investment in retail fuel outlets to allow other foreign firms like Total and Saudi Aramco to market transport fuels in India.

The fate of EVs in India is unclear in the absence of strong government support and charging infrastructure to support the country's 2030 goal. While state-controlled energy companies led by refiner IOC and utility NTPC plan to set up EV charging outlets in urban areas and on highways for the faster introduction of EVs, the focus for now seems to have shifted back to fossil fuels.

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