Is it true that ICRA has raised doubts about the demand for electrical vehicles?

In the midst of the euphoria about green cars and the big shift to electric cars or EVs, ICRA has come out with a report raising serious doubts over the issue of EV demand growth in India. According to ICRA, the combustion engine may take much longer to go away.

In fact, the report published by ICRA is rather sceptical on Electric Vehicles or EVs, especially in the passenger cars segment. ICRA estimates that the EVs will not account for more than 4-5% of the domestic vehicles market even by the year 2025. There could be two reasons.

Firstly, EVs are already priced high and the premium pricing is likely to continue. This could become a major impediment in the absence of any fiscal stimulus provided by the Union or the State Governments. There are no viable finance schemes for EVs as of now.

The other big issue is the resale value or the residual value of these cars, which is actually hindering the financiers. Compared to the combustion engine cars, since electrical vehicles are priced at a premium they lose a lot of value by the time they are driven home.

ICRA estimates that over the next five years EVs could account for 8-10% of new vehicle sales in two-wheelers and intra-city buses. However, the demand growth will remain around 4-5% of the passenger vehicle segment.

That would mean that Indian car makers with aggressive plans for the EV segment like Mahindra & Mahindra and Tata Motors would have to seriously rethink their EV sales projections in the next five years, unless something really disruptive changes the game.