2.
2 Automotive sector
66 Decarbonising India: Charting a pathway for sustainable growth
Key takeaways In the Accelerated scenario, the The Accelerated scenario needs an
Automotive tailpipe emissions sector could get to near net zero by incremental investment of $1.3 trillion
account for 280 MtCO2e per annum 2050. In the Accelerated scenario, till 2070, in addition to the $1.9 trillion
(seven-eight percent of India’s total India can abate 95 percent of tail pipe needed for the LoS scenario. This
emissions), increasing at about six- emissions by 2050. This acceleration would be for the higher upfront EVs
eight percent per annum85 due to a would come from a) reducing battery cost for the customer, while automotive,
growing vehicle parc, increasing size and fuel cell costs more quickly through battery makers and charging providers
of vehicle engines and also increasing at-scale localisation; b) providing will need to invest less than they would
average usage per vehicle. continued government support through for the equivalent ICE manufacturing
GST and FAME benefits till 2030; capacity. Additionally, the government
In the LoS scenario, the automotive c) maintaining fossil fuel taxation at would need to re-balance its finances
sector could get to net-zero tailpipe current levels; d) achieving the targeted as fuel taxes, which currently amount
emissions by 2070. Electrification modal mix of 45 percent for rail freight to 14 percent of central government
of mobility is fast-accelerating due by 2040; and e) providing pointed receipts at $50 billion (two percent of
to advances in battery technology affirmative action for transitioning to GDP), and will decline with faster EV
(storage capacity per kg up two times, EVs for select ‘late-transition’ vehicle penetration. 87
average cost reduction of 17 percent categories like HCVs.
every year over the last ten years).
The sector benefits from government The Accelerated scenario would
support (GST benefit of five percent result in an additional cumulative
on EVs versus 28–51 percent on abatement of around ~7 GtCO2e
ICE vehicles; dedicated FAME till 2070 versus the LoS scenario.
and PLI schemes). 86 Perhaps the This would also save Forex on crude
most important factor is an implicit import of $900 billion till 2050 (net
carbon tax on transportation fuels of of battery material import), versus the
$140–240/tCO₂e. As a result, India LoS scenario. An accelerated transition
can achieve almost net-zero tail pipe presents India with an opportunity to
emissions by 2070 in the LoS scenario. become a global manufacturing base
for select vehicle categories, e.g., e-two
wheelers, e-three wheelers, e-SCVs.
85
Toyota industries.
86
FAME, Ministry of heavy industries.
87
MOSPI.
Decarbonising India: Charting a pathway for sustainable growth 67
Exhibit 21
Automotive sector emissions dominated by tailpipe emissions.
Automotive emissions mix (%)
Scope 1
2% All energy used in manufacturing
7%
the car – by OEMs and suppliers
Scope 2
Scope 1&2 Emissions created to make the final
Scope 3 (bought out fuel available for the customer to
materials) use, i.e., pumping, refining, logistics
of crude, petrol, diesel and others
Scope 3 (tailpipe)
Scope 3
Tailpipe emissions, bought out
materials
91%
Source: Toyota Industries, McKinsey Analysis
The automotive sector today passenger cars and are extending to
Automotive tailpipe emissions, at CVs and other categories. 88 Yet, these
280 MtCO₂e per annum, comprise interventions provide only marginal
seven to eight percent of the total improvements.
carbon footprint of India, growing
The shifting demand to larger cars and,
at six to eight percent annually, with
hence, engines (e.g., share of entry-
scope 3 (tailpipe emissions) far higher
level hatchbacks has dropped from over
than scope 3 (upstream materials used
60 to 40 percent over the last eight-
in the car), scope 2 (fuel value chain)
nine years) 89 and the growing parc (from
and scope 1 (vehicle manufacturing)
290 million today to over 700 million
emissions (Exhibit 21).
by 2050) 90 will lead to emission growth.
The sector has been on the path of In the internal combustion engine
energy and carbon efficiency through world, tailpipe emissions could rise to
measures like light-weighting (ten 800 MtCO₂e annually by 2050.
percent weight reduction improves
As with the rest of our analysis, this
mileage by six to eight percent),
chapter examines two scenarios for
advanced combustion technologies and
getting to net-zero tailpipe emissions —
engine hybridisation. The government
the LoS scenario and the Accelerated
has also put in place regulations
scenario.
that reduce emissions by bringing in
Corporate Average Fuel Economy
(CAFE) norms that started with
88
Press Information Bureau.
89
SIAM.
90
MORTH, Vahan, SIAM.
68 Decarbonising India: Charting a pathway for sustainable growth
The LoS scenario 2. Implicit carbon taxes on
Electrification is changing the face of transportation fuels in the form
mobility globally, with EV share gains of central and state VAT and
accelerating in early adopter markets excise duties. For example, these
like China, the EU and US. These amount to 35–45 percent of the
regions expect complete electrification petrol retail price in Delhi and
of new car sales by 2030–2035 translate to an implicit carbon tax
(Exhibit 22). of $140–240/tCO₂e for usage of
petrol, depending on the crude oil
These trends are playing out in India price and prevailing rates of taxes
as well, leading to the increasing (Exhibit 24).
competitiveness of EVs vis-à-vis
ICE vehicles. 3. Upfront fiscal support being
provided by the government in the
1. Battery and fuel cell technology form of GST benefits (five percent
advancements and the associated for EVs versus 28–51 percent for
cost decrease (Exhibit 23), which ICE vehicles) and FAME benefits
is making EVs competitive on a (e.g., for two-wheelers, at the rate of
lifetime cost basis (TCO). INR 15,000/kWh of battery pack).91
91
FAME, Ministry of heavy industries
Exhibit 22
Electrification accelerating across regions.
EV1 as a % of new passenger vehicle sales
Historical EV penetration2 by region, in % EV sales projection, in %
18 China EU US
China
16 100 100 70-100
14
50-90 60-85
12 EU2
10 50-80
6
US
4
2 10
4-6 3
0
2016 2017 2018 2019 2020 2021 2020 30 2035 2020 30 2035 2020 30 2035
1. BEV, FCEV, PHEV.
2. EU+EFTA+UK.
3. Share of BEV and PHEV in percentage of total passenger car sales..
Source: McKinsey Electrification Model, McKinsey Centre for Future Mobility, Literature search, ICCT, EV Volumes, IHS
Decarbonising India: Charting a pathway for sustainable growth 69
Exhibit 23
Battery costs declining rapidly, powering the EV revolution.
Battery pack cost evolution 2021 to 2025 Pack costs Main drivers of scale effect
$/kWh Cell costs Increase in EV demand
NMC 811 LFP Improvement in learning & yield rates
-13% -11% Increase in average plant size from
9 GWh in 2021 to 18 GWh in 2025
103-125 78-95 Spread of direct & indirect cell
production costs such as labour,
104-110 65-80 SG&A, logistics, R&D costs and PPE
& depreciation
Main drivers of technology effect
Energy density increase (impact on
direct material and fixed costs) as well
as component technology of cathode,
anode and electrolyte
Gains from next-generation cathode
(advanced NMC 811)
Reduction in the cost of cell
components such as separator,
2021 2025 2021 2025 copper foil, aluminium foil, etc.
Note: Cost+ at 10 GWh plant in China, excluding the LFP royalties; LFP Export VAT 13%.
Source: McKinsey Battery insights – Battery Cost model
70 Decarbonising India: Charting a pathway for sustainable growth
