Chinese shadow growing longer over India's electric-vehicle dream

Beijing's increasing control over global supply of Lithium, a key ingredient in batteries that power electric vehicles, is scaring policymakers

India's dream of getting more and more middle-class families to use electric vehicles (EVs) seems to be hinging to Beijing, which controls the supply of some key battery components. And this might well become another flashpoint in the volatile relations between India and China.

With nations placing a strategic interest in controlling the supply chain, political interference in mining activities is increasingly making the availability of lithium, cobalt, nickel and copper scarce, EV major Tesla has warned. India might soon have to join a global struggle for Lithium, the most consequential of these minerals.

Lithium-Ion cell battery, a relative newcomer to the scene, is seen as the most efficient in extracting major power for a limited cost. So, the annual global demand for lithium, pegged at 220,000 tonnes at present, has been rising fast. Currently, 30 per cent of the demand for this mineral is accounted for by EV batteries alone. The total demand is expected to increase by three to four times by 2025, according to Edinburgh Partners, one of the many fund management companies taking a close interest in the sector as prices skyrocket.

Lithium competition

Global lithium mining is currently concentrated around five major sources — Australia, Chile, Argentina, China and Zimbabwe. While China maintains close diplomatic and trade ties with all others, the country itself has the world's second-largest Lithium reserves. Senior officials in India's external affairs ministry have confirmed that they are monitoring the issue and have even discussed with the road transport ministry the potential fallout of China cutting off India's supplies in future.

For its part, the government has announced a customs duty exemption on lithium–ion cells. This is a crucial move, considering that lithium-ion cells are almost entirely imported into country, with only a few basic assembling plants operating currently.

The issue of Chinese firms buying major mines in Argentina and Chile has already been flagged by the US, which mines only a scant two per cent of all lithium. In May, the Donald Trump administration in the US held a meeting with major mining companies and carmakers to streamline the process of securing permits for new lithium extraction and purchase of stockpiles. Expecting a long fight, Washington DC has decided to slog it out.

A senior State Department official told Business Standard that US embassies in countries with major proven lithium reserves, have been asked to facilitate the entry of American businesses in mining of the material. They had also been told to keep an eye out for Chinese investors paying a premium for gaining quick access to mines, he added.

"Any policy intervention may already be late. Four years ago, mining majors like Adani and JSW had sought government support to help connect with governments in South America to procure lithium and enter the mining sector there. But the government had refused, citing its policy of not intervening in private commercial interests," said an industry insider who did not wish to be named.

Charging mania

China's rush for lithium is also exacerbated by its rechargeable battery industry, controlling about two-thirds of the world market. The US is a distant second, with only a 13 per cent control of the global lithium-cell production capacity. According to Bloomberg NEF, China's share could grow to about 73 per cent by 2021.

As a result, policymakers in New Delhi have begun their push. The Prime Minister's Office has directed that most of the Rs 10,000-crore incentives earmarked for the second phase of the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) India Scheme be used to encourage local manufacturing of lithium-ion batteries.

Telangana, a frontrunner in the sector, has announced that three lithium-ion battery makers, with a combined capacity of 10 Gw, are expected to set up manufacturing facilities in the state by October. The Centre is pushing investments, currently pegged at Rs 1,500 crore in the first phase, to start production by 2020.

The NITI Aayog has also upped its target of battery production to 50GW, up from 40GW earlier. However, according to Chinese media reports, the country is already planning to have 630 GWh of annual battery production capacity going online by 2023.

"There was a sudden increase in battery prices from September to March. This we understand was an effort by Chinese manufacturers to aggressively corner any available raw material in the global markets. While it has stabilised now, prices remain a cause for concern among manufacturers. Last year, of the 125,000 electric vehicles sold, including 3,500 cars, 50 per cent were powered by lithium-ion batteries. This will rise further," said Sohinder Gill, director-general of the Society for Manufacturers of Electric Vehicles.

Electric dreams

From the year 2023, according to suggestions made by the NITI Aayog, all three-wheelers with internal combustion engines are to be banned. Then, two-wheelers of less than 150cc are to follow suit by 2025. The NITI Aayog's analysis shows that this, by 2030, will reduce energy demand to such an extent that more than 35 per cent of carbon emissions by the sector will potentially be wiped out. In Budget 2019, the government also announced up to Rs 150,000 of income-tax rebate on interest paid for loans taken to buy electric vehicles, with a total exemption benefit of Rs 2.5 lakh over the entire loan period.

In 2018, the electric car fleet stood at 5.1 million globally; this was 2 million more than the previous year and the number of new electric car registrations almost doubled. The global stock of electric two-wheelers was 260 million by the end of 2018 and there were 460,000 electric buses, too.

As of 2019, China remains the world's largest producer and market for e-vehicles. Last year, it also became the first country to log EV sales of more than 1.1 million. This was more than half of all global EV sales. In the long run, Beijing is set to dominate the global EV race, with the International Energy Agency earlier this month predicting that 57 per cent of global EV market will be in China by 2030.

Policymakers also expect China to tighten its grip on the global supply chain, given that it faces a grave environmental crisis, thanks to rising carbon emissions and smoke in major cities; the country sees more than 2 million passenger cars being sold annually.

With EVs' market share in India currently at 0.4 per cent, the country's fight for lithium is only just beginning.    

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