Curbing Oil Dependence? Bernstein Warns India's Flex-Fuel Push Risks Overshadowed by EV Revolution

Curbing Oil Dependence? Bernstein Warns India's Flex-Fuel Push Risks Overshadowed by EV Revolution​

A major report from brokerage Bernstein suggests that India's ambitious flex-fuel and ethanol blending program, while technically achievable, may yield only modest economic returns as electric vehicles (EVs) and other alternatives rapidly gain traction. The findings caution policymakers against committing vast capital to a nationwide flex-fuel ecosystem without critical market shifts.

Modest Economic Gains Predicted from High Ethanol Blends​

While India has achieved the 20 percent ethanol blending milestone in petrol, reaching this goal ahead of schedule, the outlook for aggressively expanding these mandates remains tempered. Bernstein estimates that even under an aggressive adoption scenario, higher ethanol blending and flex-fuel vehicles could reduce the country's crude import bill by only around 4 to 5 percent by 2030.

The brokerage highlighted that the direct contribution of passenger flex-fuel vehicles themselves would account for just 1 to 1.5 percentage points of these savings. Bernstein summarized the situation, noting, "The expensive half of the programme buys the smaller share of the prize till 2030."

Technical Roadblocks and Market Competition Emerge​

Moving beyond existing blending levels presents significant technical challenges in the current market structure. Currently, more than 80 percent of vehicles on Indian roads were designed for E10 fuel and are not fully optimized for higher ethanol blends like E25 or E27. Owners of older vehicles are already reporting mileage losses and fuel system complaints even with E20 fuels.

Bernstein questioned the economic rationale for investing in a complete flex-fuel ecosystem given the rapid advancement of alternative technologies. These alternatives, including EV batteries and charging infrastructure improvements, are increasingly delivering the same benefit—reduced dependence on imported crude oil—that the flex-fuel program seeks to achieve.

Feedstock Vulnerability Threatens Ethanol Stability​

A critical concern raised by Bernstein is the inherent sustainability risk associated with the ethanol supply chain. India's production relies heavily on sugarcane, molasses, and maize, all of which are highly susceptible to monsoon conditions and regional water availability.

The vulnerability of this dependence was starkly illustrated in 2023 when weak monsoons affected key sugar-producing states. This forced distilleries to shift towards maize, resulting in India briefly becoming a net importer of the grain from nations like Myanmar and Ukraine. As Bernstein stated, "In effect, a programme designed to reduce oil imports ended up relying on imported grain."

Global Parallels Highlight Need for Cautionary Policy​

Bernstein noted that ethanol is not guaranteed to be economically cheaper than petrol. At crude prices approximating $75 per barrel, the procurement costs of ethanol for oil marketing companies already exceed the cost of producing petrol before taxes. This implies that economic benefits from higher ethanol blends are contingent upon periods of significantly elevated crude prices.

The report drew comparisons with international experiences: the United States saw low utilization rates despite building an E85 system, while China scaled back its national mandate due to feedstock concerns. Only Brazil stands as a successful long-term example, though Bernstein stressed that India's circumstances are fundamentally distinct from Brazil’s historical and resource base.

Strategic Recommendations for Automotive Sector​

Bernstein concluded that the government can reasonably target E25-E27 blending by 2030 while continuing to strengthen the existing ethanol ecosystem. However, a major caution was issued regarding large capital investments in nationwide flex-fuel infrastructure. Such investment should be postponed unless conditions change materially, specifically if sustained crude prices exceed $90 to $100 per barrel or breakthroughs are achieved in second-generation biofuels.

From an industry viewpoint, the direct implications for vehicle manufacturers remain limited. Yet, a strong ethanol pathway could indirectly benefit companies like Maruti Suzuki, which maintains substantial exposure to internal combustion and hybrid vehicles while its EV presence remains relatively underdeveloped.