Why hybrid vehicles could be a cleaner solution for India than EVs, at least for the next 7-10 years

Hybrids have both an internal combustion engine and an on-board electric motor, with the two systems working in tandem to provide motive power.

Countries everywhere, including India, are pushing toward electrification. In India, Tata Motors, Mahindra & Mahindra and Hyundai Motor have been betting big on EVs. But passenger car market leader Maruti Suzuki has taken a more conservative approach, with no battery electric vehicle in the market so far. Maruti has, however, prioritised hybrids in its portfolio in partnership with Toyota Kirloskar.

The Centre currently offers clear tax incentives for primarily one category of cars, with practically all other vehicular technological platforms clubbed together towards the upper end of the tax bracket.

India’s electric mobility plan is largely focussed on battery electric vehicles or BEVs replacing internal combustion engine (ICE) vehicles. Li-ion is seen as the most viable battery option for now.

Why does HSBC believe hybrid vehicles are a good medium-term solution?

“We have a long-standing belief that hybrid and compressed natural gas cars are a practical medium-term (5-10 years) solution for India, while the country moves towards eventual electrification. Hybrids are critical not just from a cost of ownership perspective, but also for India’s decarbonisation drive,” the HSBC note issued to investors said.

The note said that total (well-to-wheel, or WTW) carbon emissions from an EV is currently 158 g/km, compared to 133 g/km for hybrids — which means that a hybrid is at least 16% less polluting than the corresponding EV. These numbers are 176 g/km and 201 g/km for corresponding petrol and diesel vehicles respectively.

This analysis does not focus only on tailpipe emissions, but includes vehicle emissions (tank-to-wheel, or TTW) and emissions from crude mining, refining, and power generation as well.

“In the case of EVs we have only incorporated power generation emissions and not coal production emissions, which would have skewed the equation further in favour of hybrids,” HSBC said in the note.

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For how long is this situation expected to hold?

EV and hybrid emissions could converge after 7-10 years, according to estimates made by the HSBC analysis.

The non-fossil share of power generation in India in FY23 was 26%, and the blended Indian power generation emission was 716g/kWh. According to the note, total emissions from hybrid cars and EVs will converge if non-fossil power generation in India moves up to 44%.

By 2030, even if India’s share of non-fossil fuels is 40%, hybrids will still release 8% less emissions than EVs, which, however, will be half of the 16% of today, the note said.

Analysts at HSBC Research who authored the note did not respond to a request for comment.

How is the overall global push for BEVs faring?

There are a few speed bumps on the way to rapid adoption of battery electrics at scale.

UPFRONT SUBSIDY: The experience in markets from Norway to the US and China shows that the electric push works only if it is backed by state subsidies.

An elaborate system of incentives is central to Norway’s EV policy, which has fostered the world’s most advanced EV market. So, the government waives the high taxes it imposes on sales of non-electrics; it lets electric cars run in bus lanes; toll roads are free for electric vehicles; and parking lots offer a free charge.

The problem with this kind of overt subsidisation of EVs, especially in developing countries like India, is that much of the subsidy, especially the one offered as tax breaks for cars, ends up in the hands of the middle or upper middle classes, who are typically the buyers of battery electric four-wheelers.

CHARGING NETWORK: An analysis by the World Bank has found that investing in charging infrastructure is between four and seven times more effective in ensuring EV adoption compared with providing upfront purchase subsidies.

Both Norway and China, while offering purchase subsidies, have seen faster adoption of EVs also as a result of sustained efforts at expanding the public charging infrastructure. China, the leader in the number of publicly available chargers, accounts for 85% of global fast chargers and 55% slow chargers.

The situation in India is very different from these countries. While the number of EVs had crossed 1 million by mid-2022 and will likely grow to 45-50 million by 2030, only about 2,000 public charging stations are currently operational across the country.

Also, as a report by KPMG (‘Electric vehicle charging — the next big opportunity’) pointed out, India faces a unique challenge in building charging infrastructure because the vehicle mix in the country is dominated by two- and three-wheelers.

Given that cars and these smaller vehicles have different charging requirements — two- and three-wheelers have small, low-voltage batteries for which normal AC power charging is adequate, while four-wheelers have varying battery sizes and use different charging standards — the charging network strategy has to be tweaked.

ELECTRICITY SOURCE: In several countries that have pushed EVs, much of the electricity is generated from renewables — Norway, for example, has 99% hydroelectric power. In India, the grid is still fed largely by coal-fired thermal plants.

Therefore, unless the generation mix changes significantly, India would be using fossil fuel generation to power EVs. Theoretically, this would mean reduced tailpipe emissions in the cities, but continuing pollution from the running of the thermal plant. There is the advantage of substitution of oil imports, though.

VALUE CHAIN: As India struggles to make inroads into the global lithium value chain, there is discussion on the need to diversify the country’s dependency on Li-ion batteries in the EV mix. The demand for Li-ion batteries from India is projected to grow at a CAGR of more than 30% by volume up to 2030, which translates to more than 50,000 tonnes of lithium requirement for the country to manufacture EV batteries alone.

However, more than 90% of the global Li production is concentrated in Chile, Argentina, and Bolivia, alongside Australia and China, and other key inputs such as cobalt and nickel are mined in the Congo and Indonesia. India would, therefore, be almost entirely dependent on imports from a small pool of countries to cater to its demand. While other options to Li-ion are being explored, viability remains a key factor.