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Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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EV Market Has An Unlikely Backer

EV Market Has An Unlikely Backer

Volatile oil prices and rising greenhouse emissions are contributing to increasing interest in alternatives to the conventional internal combustion engine-based cars, and auto makers like Mitsubishi, Nissan, Tesla and others are now looking to increase their investments in the Electric Vehicles (EVs).

With U.S., China and Japan leading global markets for electric vehicles, the total number of EVs on road recently surpassed the 1 million mark.

In a rather interesting development, however, the EV market now has a most unlikely backer - Russia. Russian Prime Minister Dmitry Medvedev signed an order on August 27 which states that all the Russian gas stations would have to equip their premises with EV charging stations by November 1, 2016.

EVwind

Image Source: Evwind.es

Related: How Russia’s Oil Companies Are Defying Sanctions and Low Oil Prices

Is this a practical idea for Russia?

With hardly 500 electric cars sold so far, EVs have proven to be quite unpopular among the Russian public. This means that the Russian government has an uphill struggle ahead to ignite its domestic EV market. The decision taken by the Russian Prime Minister, as part of his ‘green initiative,’ is intended to kick start the EV market in Russia, but introducing EV charging stations alone might not help the case.

It is not as if Russia is new to electric vehicles. The first EV was launched in the year 2011 when the Japanese auto giant Mitsubishi introduced its i-MEVs in Russia and it was followed by Tesla, BMW, AutoVAZ and Nissan. According to data from Autostat, Mitsubishi has managed to sell only 217 EVs in Russia to date. In 2014, 140 EVs were sold in Russia and this year, with around 50 EVs being sold in the first half, the Russian EV market is declining even further. The two biggest limiting factors are cost and climate. Related: Oil Majors Sacrifice Production To Protect Dividends

High Costs

Since none of the auto makers (apart from AutoVAZ) have their EV manufacturing facilities in Russia, the EVs are imported into Russia, which makes them prohibitively expensive when compared to conventional cars. In August 2014, Tech Entrepreneur Dmitry Grishin shelled out $180,000 for a Tesla Model S that would be shipped from the U.S. to Russia. Even the cost of setting up a charging station is high, as the related equipment also needs to be imported to Russia.

“The cost of setting up a charging station starts from $1,480. Those stations take up to nine hours to charge an electric vehicle. Modern fast-charging stations, which can charge a car in half an hour, cost around $51,720 in Russia,” said Maxim Osorin of Revolta Motors, a company that sells EVs and operates EV charging stations in and around Moscow. This indicates that the Russian government needs to do a lot more than just setting up new charging stations. It needs to stimulate demand for EVs in Russia by first reducing the high costs. Countries like the USA offer federal income tax credits and additional rebates to citizens who buy a Tesla. The Russian government (apart from introducing new EV charging stations) must initiate similar incentive schemes and discount programs that can boost the sales of EVs if they are to have any hope of spurring consumer interest. After all, costs do matter a lot, especially in an economy battered by low oil prices. Related: Petrobras Scandal Reaches Far And Wide: Are Investors At Risk?

Weather Conditions in Russia

Electric Vehicles can run a couple of hundred kilometers (or more) when fully charged. However, the battery life of an EV would reduce drastically in cold conditions, as the battery takes up additional load for warming the car. “Cars (in Russia) have to be charged every 70-80 kilometers,” said Andrei Toptun of Autostat, a market research agency. In addition to the introduction of EV charging stations (which is a sensible decision when we consider the massive size of the country and its weather conditions), Russia also needs to create a network of maintenance service centers and ensure the availability of spare parts for EVs in the coming time.

Which companies stand to benefit from the new decree?

“The electric car market is developing in European countries, so sooner or later the number of electric cars in Russia will start to grow as well. But it's unlikely to happen for the next few years”, said VTB Capital’s Bespalov. In spite of all the pessimism, companies like ChargePoint, GE, Plugshare, Schneider Electric and others could view the current development in the Russian EV market as a future investment opportunity. The new decree has the potential to generate new business for foreign companies but the Russian government first has to stimulate the demand for EVs through a solid program of incentives.

By Gaurav Agnihotri for Oilprice.com

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