People are swiping right on electric vehicles

Aug 23, 2024

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened, but why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

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In today’s Daily Brief, we look at 3 big stories:

What will it take for Electric vehicles to go mainstream in India?
Will Zomato pull another Blinkit?
Does Piyush Goyal hate Amazon?

Today’s edition is a little different. There weren’t many market moving stories yesterday, so we are going to talk about some important trends that have been playing out over the last few years. If you like this edition, please let us know in the comments.

What will it take for Electric vehicles to go mainstream in India?

Climate change is an existential threat to humanity. To ensure it doesn't worsen, we need to stop burning fossil fuels. Transportation is one of the biggest culprits, responsible for over 30% of all carbon dioxide (CO2) emissions. So, if we want to manage the effects of climate change, reducing transport emissions is non-negotiable.

Now, if someone had told you before 2020 that electric vehicles (EVs) would become popular, most people would've probably laughed. But here we are in 2024, and according to the International Energy Agency, sales of EVs might hit 17 million worldwide this year. That means one in every five cars sold will be an EV. To put that in perspective, back in 2018, the total number of EVs sold globally was just 1 million.

India, too, is catching up, albeit slowly. In 2018, EVs accounted for only 0.5% of all vehicles sold. By 2023, that figure had crossed 6%. If we break it down, EV car penetration is about 2%, and EV two-wheeler penetration is around 5.5%. Both of these were practically nonexistent before 2020.

A major factor in the adoption of EVs, apart from quality, is affordability. To make EVs more affordable, governments worldwide have rolled out subsidy schemes. In India, the government introduced the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) scheme in 2015, with a modest budget of ₹529 crore.

Then came FAME II in 2019, with a much larger budget of ₹10,000 crore. This scheme focused on EV and hybrid vehicle adoption, expanding public transportation, and building charging infrastructure. To boost India’s manufacturing capabilities and reduce imports, especially from China, the scheme required that 50% of the parts used in the vehicles be sourced domestically.

But things didn’t go as planned. The rules around using locally-made parts were confusing, and some companies exploited the system, misusing the funds. Instead of speeding up India’s EV industry, FAME II inadvertently slowed it down, leading to the eventual halt of the subsidy program due to rampant misuse by automakers.

However, the story doesn’t end there. In 2024, to keep the momentum going, the Indian government introduced the Electric Mobility Promotion Scheme (EMPS). Starting on April 1, 2024, with an initial budget of ₹500 crore, later increased to ₹778 crore, EMPS was designed to continue supporting EV sales after the FAME scheme was discontinued. Initially set to run until July, it has now been extended to September 2024.

So, the big question is: have these subsidies helped push EV adoption in India, and will the reduction in subsidies hurt?

Arguably, both the FAME schemes have been instrumental in pushing EV adoption in India. Thanks to these subsidies, India is now the world’s second-largest market for electric two-wheelers and the largest market for three-wheelers.

We did some research, looking at other countries with high EV adoption to understand more, and here’s what we found:

First, in 2023, 95% of all EV cars were sold in China, Europe, and the United States. The rest of the world combined made up just 5%. So, while the rest of the world has a lot of catching up to do, the resources to do so are severely limited.

Second, China is the biggest EV manufacturer and seller in the world. In fact, 60% of all EVs sold in 2023 were sold in China. Behind this success is a multi-dimensional approach to encouraging EV adoption. According to an analysis by the Centre for Strategic and International Studies, from 2009 to 2023, Chinese government support for EV manufacturers amounted to $230.9 billion. China uses multiple policy levers to support EVs, ranging from sales tax exemptions to faster registration for EVs, and massive R&D spending on EV technologies and government procurement.

Third, after over a decade and a half of subsidies and incentives, China has been slowly phasing out some subsidies, but sales have remained steady. This gives us an idea of the time required for markets to mature, from manufacturing to changes in consumer behavior.

Fourth, in the U.S., the big shift came with the Inflation Reduction Act (IRA) of 2022. The IRA introduced the Clean Vehicle Tax Credit, offering up to $7,500 for eligible EVs. But there was a catch—the vehicles had to be mostly made in the U.S. or use American-made batteries. This policy gave a huge boost to domestic EV sales, and today, EVs make up about 10% of the U.S. car market.

Fifth, perhaps Norway offers the best example of how to incentivize EVs. Norway has the highest percentage of electric vehicles in the world. In 2023, 90% of all cars sold in Norway were EVs. Norway has been trying to incentivize zero-emission vehicles since the 1990s. They’ve got a progressive tax structure based on weight and emissions, which makes EVs cheaper. There are no emission taxes, reduced road taxes, lower parking fees, access to bus lanes, and more.

In 2023, in many parts of the world, including India, the total cost of ownership of an EV was still higher than that of petrol and diesel cars. But EVs have the advantage of higher fuel efficiency and lower maintenance costs. Subsidies help reduce the cost and make EV ownership more appealing. So one could argue that India still needs to continue these subsidies for a few more years to ensure EV adoption increases. Otherwise, there's a risk that adoption might slow down.

Will Zomato pull another Blinkit?

Let's break down Zomato's latest move.

Zomato just made a big splash by acquiring Paytm’s entertainment and ticketing business for over ₹2,400 crores. And yes, this is an all-cash deal. But this isn't just some random purchase—it’s a calculated, strategic step that could bring benefits to both Zomato and Paytm in different ways.

For Paytm, offloading this part of their business allows them to focus more on what they do best—financial services. Plus, with regulatory pressures mounting, this influx of cash will help them keep their shareholders satisfied, at least for a while.

For Zomato, it’s not just about adding another business to their portfolio. They’ve already ventured into new markets like quick commerce with Blinkit. Now, by acquiring Paytm’s movie and event ticketing business, Zomato is positioning itself to become the go-to app for all kinds of “going-out” experiences, complementing their existing dining-out unit, which, while a smaller part of their revenue, is still profitable.

In their recent quarterly results, Zomato’s management talked about the potential they see in the “going-out” space. They highlighted that their dining-out business, which helps people discover restaurants, is already profitable, with a run-rate of over $500 million in annualized gross order value (GOV). But they’re not stopping there. They’re planning to expand into other areas like movie tickets, sports events, live performances, shopping, and even staycations.

To bring this vision to life, Zomato is planning to launch a separate app called District by Zomato, focusing solely on these going-out experiences. They’re borrowing a page from the Blinkit playbook—creating a separate brand and app while still leveraging the traffic they already have on the Zomato platform to keep customer acquisition costs low.

According to Motilal Oswal, the take rate for this new business could be around 12%, although it might vary depending on the offering. For instance, movie tickets might have lower commissions, while exclusive rights to major sports or live music events could command much higher fees.

So, will this move be another home run like Blinkit, or could it fizzle out like the Zomato Legends venture, where people could order iconic dishes from other cities? Only time will tell.

Does Piyush Goyal hate Amazon?

Let's dive into why Piyush Goyal, India's Minister of Commerce and Industry, has some strong feelings about Amazon.

Recently, Goyal made a bold statement about Amazon’s much-publicized billion-dollar investment in India:

"When Amazon says we’re going to invest a billion dollars in India and we all celebrate, we forget the underlying story. That billion-dollar investment is not coming in for any great service or any great investment to support the Indian economy. They made a billion-dollar loss in their balance sheet that year, and they have to fill in that loss."

At first glance, this might seem harsh—after all, why wouldn't we want foreign direct investment (FDI) in India? But there are a few reasons why Goyal might be unhappy with Amazon.

First, Goyal suggested that Amazon might be using legal loopholes to its advantage. He pointed out that the company spends large sums on legal and financial professionals, possibly to block legal challenges and navigate around regulations.

Second, Goyal questioned whether Amazon’s reported ₹6,000 crore loss in a single year is a sign of predatory pricing. The concern here is that Amazon might be deliberately lowering prices to unsustainable levels to drive competitors out of the market, which can harm smaller businesses and disrupt fair competition.

Third, Goyal might be advocating for the Open Network for Digital Commerce (ONDC) as a way to counterbalance the dominance of companies like Amazon. ONDC aims to democratize e-commerce in India by creating an open-source platform where buyers and sellers can connect directly without relying on major intermediaries like Amazon.

Fourth, this could also be a political statement, considering that retailers represent a large voter base. The government can’t be perceived as being too supportive of foreign companies, especially in this environment.

Fifth, India has strict FDI regulations in the e-commerce sector, especially for multi-brand retail. Foreign companies aren’t allowed to operate in an inventory-based model, where they directly own the products they sell. Instead, they must operate under a marketplace model, acting as intermediaries between buyers and sellers.

Now, this is where it gets interesting. Under these regulations, foreign companies cannot operate an inventory-based model of e-commerce, where they directly own the inventory sold on their platforms.

Amazon operates in India under the marketplace model, which allows 100% FDI. However, concerns have been raised that Amazon might be exploiting this model by indirectly controlling inventory through preferred sellers or entities in which it has a stake.

To navigate these FDI regulations, Amazon India partnered with Catamaran Ventures to create a joint venture called Prione Business Services. Cloudtail, a subsidiary of Prione, became Amazon’s largest seller in India. While technically a third-party seller, Cloudtail allowed Amazon to exert significant control over inventory without directly owning it. This setup enabled Amazon to offer a wide range of products on its platform while adhering to the letter of the law, if not the spirit.

As Cloudtail’s dominance on Amazon India grew, it attracted significant scrutiny from India's competition regulators and smaller retailers. Complaints were raised about anti-competitive practices, like deep discounting and favoritism towards Cloudtail, which hurt smaller, independent sellers. In response, the Indian government tightened regulations in 2018 and 2020, making it harder for companies like Amazon to operate under the same model.

As a result, Amazon had to dissolve its joint venture with Catamaran Ventures, effectively ending Cloudtail’s role as the largest seller on the platform. However, Amazon wasn’t willing to lose its market position. It bought out Cloudtail and began dividing its business among multiple independent sellers to comply with the new regulations. Despite these changes, concerns remained that Amazon would continue to exert influence over these new sellers through its logistics, fulfillment services, and data insights, raising questions about whether true competition was being restored.

Similarly, Flipkart faced scrutiny for potentially violating FDI rules by using an intermediary, WS Retail, to sell goods on its platform. The government suspected that Flipkart was operating in a B2C (business-to-consumer) model, which is prohibited for companies with FDI. This led to an investigation, with the possibility of a hefty fine being imposed on Flipkart, especially after Walmart acquired a controlling stake in the company in 2018.

But the concerns about Amazon and Flipkart aren’t just isolated to these companies. Globally, there’s growing unease about the power and influence of big tech companies. This sentiment is echoed in India, where there’s a rising pushback against these big tech giants, especially regarding how they operate in emerging markets.

Piyush Goyal’s comments reflect the broader trend of increasing hostility from governments around the world towards big tech companies. From Europe to the US to India, governments have been imposing billions in fines and looking for ways to curtail the dominance of these firms.

The Competition Commission of India (CCI) has been increasingly vigilant, and there’s been talk of potential fines or other regulatory actions against some of these big tech companies. In 2022, the CCI imposed a penalty of more than ₹1,300 crores on Google for anti-competitive practices related to Android mobile devices. Meanwhile, in the US, Google faced a major antitrust case where a judge ruled that the company had illegally maintained its monopoly over online search. The CCI was also investigating Apple for not providing enough details about its App Store practices, particularly regarding commission fees and app distribution policies.

After yesterday’s comments, Piyush Goyal clarified his stance, saying:

“We are very clear that we want to invite FDI (foreign direct investment), we want to invite technology, we want to have the best of the world, and we are not against online at all… online e-commerce has tremendous benefits. It has the benefit of convenience, speed, it gives you comfort in your homes, many benefits.”

So, while Goyal’s comments might seem harsh on the surface, they’re part of a broader context of concerns about big tech’s role and influence, both in India and globally.

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