The time for a move away from fossil fuels has come. Global weather disasters and the pollution levels of major Indian cities are clear indications that the costs of pollution are beginning to spiral out of control for citizens and economies alike.

The climate change disruption holds both opportunities and challenges. Facing the need for a drastically reduced CO2 footprint per capita head on will allow forward-thinking nations to develop new technologies and to establish leading positions in future energy-efficient products and services. Nations that do not live up to their responsibility for global climate protection will not only harm us all but be ultimately left behind from a technology and business perspective.

India’s announcement and intention to move from fossil fuel-driven vehicles to electric vehicles is positive. Rather than being a late follower in technology development, the government would like to position India’s industry at the forefront of the global quest for clean mobility. This is to be wholeheartedly supported.

Over the last 30-40 years, India has developed the capability to engineer and build globally competitive vehicles based on internal combustion engines (ICEs). Via joint ventures, technology licences and technology transfer, Indian manufacturers and suppliers have built full-fledged capabilities in ICEs. Value engineering of these products ensured personal mobility for the Indian middle class at price points that are unmatched globally.

Today, about 40-50% of the domestic and export sales of Indian suppliers is tied to ICE. The Indian automotive industry has leveraged its investments in ICEs to build scale and globally competitive manufacturing as well as engineering capability. The industry has created highly skilled, well-paid jobs and generated badly needed export earnings. Significant investments continue, as manufacturers and suppliers are gearing up to meet the BS VI challenge.

A binary transition from fossil fuels to electric vehicles entails significant risks. First, technology transfer and joint ventures have to be encouraged to ensure indigenization of technology. Customers will benefit from this transfer due to the Indian capability for cost-efficient engineering. Industry must play as much a leading role in electric vehicles as it does today in ICEs to ensure employment, capability building and tax revenue. In addition, localization is crucial to avoid replacement of an oil import bill with a battery import bill. The latter simply switches political dependency from the Gulf states to China.

The government needs to support relevant volumes in chosen segments, e.g., via public tenders, incentives or access restrictions. These measures need to be decisive enough to drive significant, visible adoption of electric vehicles in India’s cities. Without a reasonable visibility of volumes, businesses will not invest.

Policy clarity is a must. While a number of green technologies can be pursued, the practical reality of the Indian automotive industry is that resources for investment are limited. A focused push on electric vehicles in addition to the BS VI transition already stretches capability limits for many indigenous companies.

Policy consistency is equally crucial. Long-term investments are required; sudden policy changes that alter business case assumptions can drive companies into ruin. Multinational corporations have technology available off-the-shelf and can relatively easy decide to engage or withdraw from the Indian market, e.g., General Motors. Indian companies are sure to lose out in unstable policy scenarios.

Technology risks such as liability issues around battery swapping, unstable battery technology, recycling of batteries and infrastructure requirements need to be assessed in detail. Life-cycle greenhouse gas (GHG) emissions have to be considered when comparing battery electric vehicles with fossil fuel vehicles. GHG emissions during battery production and recycling must be reduced. Given these challenges, businesses need not only high-level directions, but also detailed implementation road maps.

Use cases—say, rural vs metro needs, 2-/3-wheeler vs 4-wheeler applications—will have to be studied in detail. As a consequence, a gradual transition towards electric mobility may be a more adequate scenario than a binary transition.

Lastly, as the case studies of the US, Germany, France, Japan, Korea and China show, a strong automotive industry creates disproportionate benefits in technology, capability, taxes and employment for the country of origin of manufacturers and suppliers. Such an industrial ecosystem can develop if local lead markets (such as the luxury car market in Germany) as well as an active industrial policy that promotes local champions are present. In the case of India, it is in the country’s interest to champion key Indian manufacturers and their indigenous suppliers. In an environment, where job creation is falling far short of population growth, active development of a high-paying sector is paramount.

The need for a transition to electric vehicles in India is undeniable. Indian manufacturers and suppliers have to accept this reality and start working to pivot their product portfolios towards this new environment. They need to rework their strategies and re-allocate investments. The full force of India’s engineering and entrepreneurial talent, however, will only be brought to bear with consistent cooperation between industry and government.

Wilfried Aulbur is managing partner, Roland Berger. Comments are welcome at theirview@livemint.com

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