Crashing oil prices and coronavirus might delay growth of electric vehicles but not indefinitely

  • EVs have seen massive popularity across the world and in India, even the Narendra Modi government has been boosting its growth.
  • Experts believe that the impact of crashing oil prices on EVs will only be for the short term.
  • Instead the EV segment is poised to take over this crisis as an opportunity for bigger growth.
This week, an unprecedented incident happened – the US crude oil prices crashed and went into negative territory. As factories are shut, cars staying off the roads, there is not much demand for oil. But it’s price crash could soon have an impact on the automobile sector, especially the electric vehicle segment.

EVs have seen massive popularity across the world and in India, even the Narendra Modi government has been boosting its growth. But as fossil fuels get cheaper, electric vehicles could look even more expensive in comparison.

However, experts believe that the impact on EVs will only be for the short term. “Weak consumer sentiments in the short team will result in delayed discretionary spending which will definitely have an impact on the overall sector and the EV segment as well. The precipitous fall in oil prices may widen the total cost of ownership gap between an IC and a EV platform in the short term,” said Vinay Raghunath, Partner and Leader, Automotive sector, EY India.

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He added that there will be an increasing segment of customers in the medium term who will value the overall economic impact as a significant purchase criteria aided by a build-up of EV infrastructure across cities.

“While in the short term, the current oil prices may delay adoption of EV platforms there will continue to be a concerted effort by all stakeholders to drive EV growth in India over the medium term,” said Raghunath.

Pranav Jain, an auto consultant, said that in India, the final price of oil to the consumer will not change as much. The government is also considering an excise duty hike to compensate for the falling crude prices.

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“This means that limited benefits or drawbacks are passed on to consumers making the recent oil price crash a bounded opportunity for growth of either ICE or electric vehicle sales. But, if used strategically, this factor could give a major boost to EV adoption post-Covid recovery,” said Jain.

But the slump in the EV sector is not restricted to falling oil prices alone.

New EV launches could be delayed

India was ramping up for a slew of EV car launches this year from the bigwigs like Tata, Maruti Suzuki and more. In fact, EV sales in India hit 156,000 in FY20, up from 130,000 the previous year, said the Society of Manufacturers of Electric Vehicles (SMEV) on Monday.
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But with the coronavirus lockdown, things could change. New car launches have been delayed and a weak consumer sentiment even after lockdown could mean people will refrain from big buys.

For auto manufacturers too it's a difficult time as most of their manufacturing parts come in from China, where the coronavirus pandemic began. So, their supply has been affected for a long time now.

“Due to Covid-19, major EV manufacturing facilities including Tesla’s Shanghai plant are stranded leading to ambiguity in newly built supply chain ecosystems and energy distribution channels. But strong resilience can be seen from major passenger vehicle manufacturers from Europe and the US and major commercial vehicle manufacturers from China. A slump in EV sales can definitely be forecasted but the causing factors are not centred around oil,” said Jain.
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Jain believes that the EV segment will bounce back with a V-curve growth.

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