India’s push for transport electrification is a key strategy in its net-zero commitment, aiming to reduce emissions intensity by 45% by 2030 and increase renewable energy to 50%. Government policies target 30% EV adoption for private cars and up to 80% for two- and three-wheelers by 2030, accelerating domestic EV manufacturing. While this shift creates opportunities, it also poses financial risks for Indian automakers facing competition from global EV brands and the risk of stranded assets. The oil sector may also be impacted as transport electrification reduces demand. Additionally, while EV adoption can support renewable energy integration, it may challenge the power sector’s capacity to meet rising electricity demand. A new report by Alexandre C. Köberle, Abhinav Jindal, Shivika Mittal, Gireesh Shrimali study explores these financial risks and broader economic implications, highlighting gaps in climate and financial modeling.
Key takeaways
• The authors examine the potential consequences to:
- Indian automakers’ financial performance as measured by a cash flow at risk (CFaR) metric caused by a 25% electric vehicle share of new vehicle sales by 2030 (EV25 scenario), and
- To the transportation, power and industry sectors caused by a demand side shock where a share of electric mobility demand equal to 25% of total passenger road transportation by 2030 (DEM25 scenario).
• These scenarios represent severe shocks to the current transportation system in India. They depart from current trends to explore the risk transmission channels and identify vulnerabilities that may arise in case of technological breakthroughs that make EV prices plummet.
• Our results indicate that the scenarios imply levels of EV share that cause limited impacts in power generation but imply major changes to the electricity grid and pose substantial risks for the financial performance of the automakers.
• The EV25 scenario implies a wide spread in CFaR among India’s auto makers, suggesting diverse risk exposure across firms. Among the three players, Maruti is most impacted by EV penetration, while Tata Motors benefits and Mahindra & Mahindra Ltd (M&M) is less impacted.
• In the short term, impacts on industry will be more greatly felt by industrial firms in the automobile value chain through the need to adjust supply chains and assembly lines. The drivetrains of EVs are substantially different from those in internal combustion engine (ICE)
vehicles. Not only is the engine different, but so are transmissions, brakes and electronics, which imply significant investments from affected firms.
• Moving to cross-sector impacts, the severe shock represented by the DEM25 scenario causes electricity demand in the transportation sector to increase by 59% in 2030 compared to current trends. Interestingly, this translates to only around 1% of additional electric capacity
needs, highlighting the currently high spare capacity of India’s power plants.
• This increase in electricity demand is mirrored by decreases in the consumption of biofuels and petroleum-derived liquid fuels like diesel and gasoline, implying a substantial reduction in tailpipe emissions from internal combustion engine vehicles, shifting the composition of
transportation sector emissions to the value chain’s embedded emissions.
• Beyond tailpipe emissions, steel is a key input for automakers and a large contributor to Scope 3 emissions. A shift to EVs could bring further attention to low-carbon steel, posing additional risks for India’s steel sector.
• Implications for India’s financial sector include the market (and credit) risk of investment increases for companies that are laggards in the EV market (e.g., Maruti), with the risks for these firms increasing with increasing EV penetration in total vehicle fleet or decreasing EV
market share of the company.
• Emerging risks can be managed by working with (and incentivizing) investee companies to increase their EV market shares and, at the same time, advocating for higher EV penetration goals. An example incentive structure could be via a sustainability-linked bond, where
investee companies would get a discount on their cost of capital if they can achieve higher EV market shares.