Rising Costs, China's Dominance: Can India Be 'Atmanirbhar' for EV Batteries?

The Centre has also revised GST for local EV manufacturers to 5 percent.

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India has set itself an ambitious target for transition from ICE (internal combustion engine) vehicles to meet emission goals.

The thrust of this shift will be on promoting the use of electric vehicles (EVs) and the target is that nearly every third vehicle sold in India by 2030 would be an EV.

But an ill-prepared ecosystem for various EV parts, specially batteries, could be the party spoiler.

Batteries account for 25–50 percent of the total cost of an EV, depending on range and performance. And the continued increase in global battery prices in the last few months threatens to impact demand for EVs.

The lithium-ion batteries used to power EVs comprise cells, packs and BMS (Battery management system). As of now, India imports nearly all of its lithium-ion battery cell requirements.

The government has recently announced a PLI (production linked incentive) scheme to encourage domestic manufacturing of battery cells and some of the prominent names of India Inc have jumped in the fray to set up gigafactories.

Of the ten applicants for the incentive scheme, four have been shortlisted and another five have been waitlisted.

But despite this emphasis on encouraging local production of battery cells, import dependence will remain since the typical lead time for production of battery cells is at least two years.

Meanwhile, a surge in global prices besides China’s continued dominance over the battery cell production has EV makers worried.

Musk Shows the Way

Elon Musk realised sometime back that battery self-sufficiency was critical to stay ahead in the EV game.

He not only set up battery cell manufacturing units in-house, Musk is now talking of making battery cells at scale besides experimenting with compositions beyond the typical lithium-ion grid.

In an SEC filing after the first quarter results, Tesla has said deliveries of “Model Y” began from its gigafactory in Texas this month and that this model is fitted with 4680 battery cells made in-house.

“The next phase of production growth will depend on the ramp at Gigafactory Berlin and Gigafactory Texas, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range," the filing said.

"Consistent with our approach of innovating manufacturing techniques at our new factories, we expect as well to pioneer new methods related to the mass production of these cells and our unique structural battery pack concept," it added.

Musk’s ambitious battery making bet may or may not pay off just yet, but he has at least shown the world the criticality of manufacturing batteries for EV ambitions to bear fruit.

Battery Prices on Fire

Maxson Lewis, founder and MD of EV Solutions company Magenta says that till October 2021, Li-ion battery prices were falling continuously because of increasing production. But prices started increasing thereafter.

This happened due to several factors, including supply chain disruptions due to COVID-19 and the simultaneous surge in demand from manufacturers of electric vehicles. The geopolitical situation created due to the Russia-Ukraine conflict also added to price volatility.

Input costs for batteries have risen exponentially too in the interim.

As per Trading Economics, prices of Cobalt – a key raw material in the batteries – have jumped by 80 percent in a year. Prices of nickel have almost doubled while Manganese prices have hardened by about 9 percent. Lithium is also dearer.

This price volatility coupled with supply chain disruptions have led to unprecedented increase in battery prices.

Lewis says that the trend of increasing battery prices is here to stay. Why the increase in battery pieces is a concern should be clear from this statistic: In 2013, the price of a battery was $600 Kwh, which fell to $150 Kwh by 2020 but now, there has been at least a 15 percent increase from the 2020 price.

Demand Scenario

Analysts tracking EV sales have noticed no slowdown in sales of electric two wheelers, the biggest segment within EVs. In FY22, sales of electric 2W were up nearly four-and-a-half times and most of the large selling models have a waiting period.

In March itself, an increase in purchase incentives under the government’s FAME 2 scheme meant nearly 50,000 electric two wheelers were sold against an average 8000 a month in the fiscal year.

Many of the electric two wheeler OEMs are also expanding capacity further in anticipation of a continued jump in demand.

But two factors could change this robust demand scenario: the rising cost of batteries and the recent instances of two wheeler batteries catching fire (some have caused fatalities too).

Industry watchers point out that cost cutting and inadequate R&D have led to this safety hazard. The imported two wheeler battery packs are manufactured for international temperature gradients.

Inadequate R&D to make these packs suitable to Indian conditions is the likely cause of frequent battery fires. The packs have not been customised for factors such as heat , humidity or even power fluctuations.

As policy makers look towards OEMs to improve product safety, the rising cost of EV batteries could be an added dampener going forward.

Atmanirbharta in Batteries

India is more vulnerable to global price fluctuations since it depends almost entirely on imports for battery cells. We do assemble battery packs domestically though.

A report from the Institute of Energy Economics and Financial Analysis says that reasons for the reluctance of Indian companies to manufacture battery cells include unavailability of key raw materials – lithium, nickel, cobalt – and inadequate R&D. It estimates the market size for Lithium-ion batteries to be 116 GwH by 2030.

To encourage domestic manufacturing, the government has already launched a PLI scheme to incentivise setting up of 50 GwH of Advanced Chemistry Cell (ACC) battery storage capacity with an investment of Rs 18,100 crore.

“Under the said initiative the emphasis of the government is to achieve greater domestic value addition, while at the same time ensuring that the levelized cost of battery manufacturing in India is globally competitive,” an official statement said.

Korean car maker Hyundai, an arm of Reliance Industries, Ola Electric and Rajesh Exports are the selected applicants.

Besides the PLI scheme, India is also scouting for mines overseas through a state-owned mining company to get access to some of the rare earths needed in battery manufacturing and thus reduce import dependence.

Chinese Dominance

According to a NITI Ayog report, in 2020, the global capacity for manufacturing lithium-ion batteries was 540 Gwh and of that, more than three fourths was in China. In that year, the EU had just 7 percent while the US had 8 percent of the total global Li-ion manufacturing capacity.

By 2025, when the global capacity is expected to nearly quadruple to 2015 Gwh, China will still account for two-thirds of the world’s lithium ion battery capacity.

So, it is clear that as of now, India remains helpless in the face of a spike in battery prices because of its import dependence. Unless domestic capacities go onstream, this situation is unlikely to change.

(The author is a senior journalist. She tweets @sinjain. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)