EV battery prices fall sharply, but local manufacturing yet to take off

Manufacturing of battery cells for electric vehicles (EV) is yet to take off in India in the absence of a strong local market despite a steep fall in prices of battery cells and the recent thrust by the government and some players to promote EVs. Batteries comprise 30 per cent of the cost of an EV. Its primary ingredient, lithium-ion cells, however, is still majorly imported from China and South Asian counties.

According to estimates by EV makers, the average cost of battery cells has come down to $200 per kilowatt per hour (kWh), as against $1,200 per kWh three years ago. For reference, Mahindra e2o Plus, an electric car, spots 16 kWh battery, which gives it a range of 120 km on full charge. However, while lower cost will act as tailwinds, full-scale benefit is taking some time to be realised with large local players such as Mahindra & Mahindra and BHEL still sitting on the fence about setting up battery cell manufacturing units in India. “Average costs are now less than $200/kWh at decent volumes and may go down to $150/kWh soon,” said Tarun Mehta, co-founder and chief executive officer (CEO) of Ather Energy, a Bengaluru-based smart electric scooter manufacturing company backed by Hero MotoCorp.

While this is a positive development, future outlook on battery prices is in negative given that all battery cells are imported. Among the five of the largest suppliers, two (Samsung and Panasonic) are in South Korea, two (Contemporary Amperex Technology (CATL) and BYD Company) in China, and one (LG) is in Japan.

Further, India does not have any reserve for lithium, the chief component of lithium-ion batteries, which is the most popular type of battery currently in use. Apart from lithium, cell manufacturing or packaging chemicals into hard-cast cells accounts for around 25–30 per cent of the cost while the cell-to-battery-pack manufacturing accounts for the rest of the value addition. “The problem is that all finished cells are imported. There is not even a single cell supplier in India,” said Saurav Kumar, founder and CEO, Euler Motors, which makes electric-powered commercial three-wheelers.

“For instance, Mahindra is buying the cells from a Chinese company, assembling them oversees and getting the pack module here. The company itself is only building the BMS (battery management system) and thermal management systems over here,” said a top EV executive, who did not wish to be quoted.  

India has envisaged converting most of the vehicles on road to electric in six years. The Centre is pushing for a full transition of three-wheelers by 2023 and two-wheelers by 2025. Indigenous production of battery cells forms a crucial part towards achieving this aspirational target and the government has taken certain steps in this direction. To spur local manufacturing, the government in January slapped 5 per cent customs duty on import of lithium-ion cells, months after reducing the GST local battery packs to 18 per cent from 28 per cent.

According to industry participants, the government is expected to issue tenders inviting companies to set up 50 gigawatt hours (GWh) of lithium-ion battery manufacturing in India, complete with tax soaps and easier land acquisition requirements. So far, only a handful of big players have announced field projects. Japan’s Suzuki Motor Corporation, in collaboration with Toshiba and Toyota, has announced a battery manufacturing plant in Gujarat’s Hansalpur, with an initial investment of $180 million. The plant will start production next year. Tata Chemicals has announced a greenfield project in Gujarat, entailing an investment of $600 million. The plant will have an initial capacity of 10 GWh. Other major corporates such as BHEL, Adani Group, and Hero MotoCorp are evaluating plans to set up local battery manufacturing units, while few others, including Hyundai, are waiting for the volumes to pick up.

“If you are able to boost the demand, which states like Maharashtra and Himachal Pradesh are trying to do, it will immediately spur the need for batteries, as players will see business in setting up local manufacturing,” said Shree Harsha, India marketing director at Dassault Systemes, a global automobile software firm.