How Uber’s deal with Tata Motors could boost India’s EV adoption

The ecosystem supporting EVs is less developed, and potential vehicle owners have concerns about charging, servicing, cost-effectiveness, safety, etc. This is a circular position. Until and unless the EVs reach mass scale, the ecosystem will not develop and until the ecosystem develops, people will hesitate to buy EVs.

The adoption of EVs by ride-hailing companies will help address this. Tata Motors already had a contract to supply 10,000 EVs to BlueSmart, and Ola is taking 1,000 EVs for a pilot project in Bangalore. The Uber deal gives Tata Motors a major market share in the electric passenger vehicle category, though its exact value has not been disclosed.

Uber is scheduled to receive phased deliveries of long-range Express-T EVs starting this month. It will partner with fleet operators in NCR, Mumbai, Kolkata, Chennai, Hyderabad, Bengaluru and Ahmedabad to deploy the cars. The business model is different from the traditional petrol/diesel taxi one, in that multiple cars are driven by their owners. BlueSmart directly manages its vehicles and drivers. A fleet operator owns multiple vehicles, employs drivers and strikes a package deal with Uber to drive EV adoption.

The rollout of EV fleets in seven metropolitan areas should lead to a rapid increase in the value chain for EV operations. These vehicles need to be charged, so fleets will need to develop a network of charging stations. In theory, EVs require far less mechanical maintenance than internal combustion engines because there are far fewer moving parts. However, a large fleet of cabs logging 250-300 kms per day per vehicle would certainly require servicing, repair and maintenance facilities. This will create an ecosystem and encourage up-skilling of mechanics to handle these tasks. How the EVs perform and stand up to wear and tear under Indian climate and road conditions will also yield useful data.

Elsewhere there have been occasional safety issues with EVs. Available data suggests that EVs break down much less frequently than internal combustion engine (ICE) cars, because of mechanical stress and fewer parts to fail. But EV batteries have been known to catch fire and even explode under certain conditions, and service personnel, traffic police and fire brigades are less familiar with the hazards and protocols to deal with these.

Having a large operational fleet will help in creating an ecosystem of charging stations and servicing, repair and maintenance facilities quickly, apart from helping in building safety systems. It will also give insurers a better understanding of how to design motor insurance policies for EVs. Above all, the large fleet of EV taxis makes it possible to compare the overall cost-effectiveness of these vehicles versus petrol, diesel and natural gas cars.

EVs will only be widely accepted once average citizens believe they are safe, easy to charge and maintain, and provide value for money. The fact that EVs are “green” is a policy consideration, and subsidies to encourage EV use make sense. But these are not enough to ensure widespread penetration in the absence of an ecosystem.

For Tata Motors, rapid growth in the EV segment is clearly desirable. The company will cross 50,000 in EV car sales in 2022-23 (FY23) and is expected to double it to over one lakh in FY24. If it achieves this, close to EVs may arise 15,000 crore – around 15-20% of total revenue – for Tata Motors by FY24.

The company reported revenue of 47,263 crore in FY22 and 45,615 crore in the first three quarters of FY23 (April-December 2022). Furthermore, it has undergone a metamorphosis of sorts, with nine months of profit reported after tax loss of 32 crores Vs. 1,804 crore in the entire FY22.

Of course, the consolidated results will look very different. Jaguar Land Rover (JLR), the wholly owned subsidiary, is much larger than the parent. JLR raised £18 billion (approx. 1.85 trillion) in revenue in FY22, and this was down from pre-pandemic revenue of £23 billion in FY20. JLR had a loss of £400 million in FY22. Consolidated loss amount for Tata Motors and all its subsidiaries 11,308 crores.

Clearly, JLR is grappling with a combination of Brexit, the China lockdown (it has a major subsidiary there) and other issues. So while the stock market may react cautiously to the Tata-Uber deal, it bodes very well for the EV ecosystem.