Niti Aayog's draft EV battery policy leaves too many unanswered questions

India’s much-awaited policy on battery swapping and battery charging stations is a welcome addition to the manifold steps by the government to promote electric vehicles (EV). But unlike FAME (Faster Adoption and Manufacturing of Electric and Hybrid Vehicles) and a Production-Linked Incentive (PLI) scheme for cell production, Niti Aayog’s draft policy on battery swapping, issued on April 20 and seeking comments by June 5, is skimpy on detail and vague on timelines. Investors need more clarity on technology and financial issues if they plan to commit billions of dollars to the EV ecosystem, industry sources involved in the charging ecosystem told Business Standard.

India’s quest for a net zero carbon economy by 2070 depends largely on controlling emissions from power plants and decarbonising transport. EV adoption has been delayed because of lack of charging facilities and battery standards. So, in February Finance Minister Nirmala Sitharaman proposed a battery-swapping policy to accelerate the transition and support a domestic battery manufacturing business. Battery swapping falls under the broader umbrella of battery as a Service (BaaS) business where users buy an EV without the battery, lowering upfront costs, and pay a subscription fee for battery services.

To be sure, the policy announcement indicates significant progress. “The draft policy is a step in the right direction and addresses key requirements of the industry from a policy standpoint,” said Rohan Rao, partner, KPMG, adding, “The policy is likely to quicken the adoption of EV 2Ws and 3Ws in commercial and fleet operations.”

Trilok Nath Mittal, managing director, TNR Electric Vehicles, a Sonipat-based e-vehicle maker, pointed out, “The country is facing a rise in fuel prices, so we are expecting this to help increase EV sales.”

And Abhijeet Sinha, project director, National Highways for Electric Vehicles, an EV solutions consultancy, thought the policy would bring “e-2W and e-3W price down by 30–40 per cent with battery on subscription, and will shift users to EVs from IC engines”.

But battery swapping is a niche business because 76 per cent of Indian consumers prefer charging at home, said a Deloitte survey. It has advantages in public transport or fleets in 2W and 3W where the battery is smaller, lighter and faster to replace, Awadhesh Jha, executive director, Fortum, a Nordic EV charging service provider, said.

Typically, investors avoid taking undue risks when the market size is small or niche, technologies new, and business models unproven. They require hand-holding by the government and clear and time-bound rules and incentives.

The policy falls short on such details. Take taxes. Industry body CII has complained about skewed tax structures stifling BaaS. The GST is 5 per cent if the battery comes with the EV; if sold separately, it is 18 per cent. This puts battery swapping operators at a disadvantage, making the business unviable.

The policy proposes a reduction in differential GST tax rates on lithium-ion batteries but is silent on an 18 per cent tax on charging, and equally silent on the timeline of the tax cut. All it said was: “The GST Council may consider reducing the differential across the two tax rates. The Council will take an appropriate decision in this regard at a suitable time.”

The government proposes to extend FAME incentives currently available for fixed battery EVs to swappable EV models. On this the draft document said, “To formalise and operationalise the possible subsidy scheme, an appropriate ongoing scheme may be revised, or a new scheme may be launched.” And then, “It is also proposed that a seamless mechanism for the disbursement of subsidies shall be worked out by the concerned ministry or department.’’ Again, granularity is missing, with not even an overall budget mentioned for the programme.

There is little clarity also on financing vehicles without a battery. Autos and bikes are typically financed. But when the auto frame and battery are separated to make the sale, financiers are reluctant to fund the shell, Hemal Thakkar at Crisil Research pointed out. The frame and motor still account for half the vehicle’s cost but are useless without the battery, and banks cannot dispose of a repossessed frame in case of a default. The policy fails to address this issue, only saying that “with the strengthening of the ecosystem supported by the de-risking measures, it is expected that third-party entities will partner with battery providers, OEMs, and end customers to provide affordable financing options”.

Interoperability — a critical issue defined as the compatibility of fixed or swappable EV batteries with different EV models, or the compatibility of such batteries with the EV supply equipment in different charging systems — has been only partly addressed. “Battery standardisation and certification standards are much more important than swapping infrastructure,’’ said Amit Das, founder of Gurugram-based Electric One Mobility, an e-mobility franchise store chain. “The government and regulatory bodies have to come up with innovative solutions on standardisation of batteries.”

The policy only stipulates the minimum technical and operational requirements that battery-swapping ecosystems would need to fulfil, rather than mandate a set of operating standards to foster interoperability, allowing for multiple distinct interoperable solutions to coexist.

Industry sources said this was a surprise. Leaving interoperability systems to a nascent market may lead to the domination of a few large players to the exclusion of smaller companies and start-ups, an executive at a charging company said.

The government had constituted four committees to study interoperability in battery size and shape, interoperability connector, data protocol and data communication protocol. They met in February and were considering 10 standards, according to an official with Charge Point Operators Society of India (CPO). The understanding was that these standards would be announced in two months in the battery policy, the CPO official said. Instead, standards were diluted from mandatory to minimal, undefined, and left to market forces, an industry source said.

The draft policy also calls for a Unique Identification Number to monitor EV batteries, a welcome move considering the spate of accidents plaguing 2WEVs. But there are no details on the standard. Key issues related to land allotments, power connections and registration of vehicles without batteries have been left to local authorities. Missing from the draft are incentives to promote solar charging infrastructure that can be set up at roadside battery charging stations to reduce the load on the grid, and turn green, said Shrikant Shinde, founder and CEO of Mumbai-based EV service provider GoGoA1.

Perhaps the final policy will be more comprehensive after taking stakeholder opinion on board.

SPARKING POINTS

• GST is 5% if the battery comes with the EV; if sold separately, it is 18%, making the battery swapping business unviable. The policy proposes a reduction in GST differentials but no details on the amount or the timeline of the tax cut
• FAME incentives, currently available for fixed battery EVs, may be extended to swappable EV models but the policy offers no details on the shape of the scheme, timelines and subsidy budgets
• The mode of financing vehicles without a battery has not been spelt out. The frame and motor account for half the vehicle’s cost but are useless without the battery, and banks cannot dispose of a repossessed frame in case of a default
• Policy does not mandate a set of battery standardisation and certification standards, only stipulating minimum technical and operational requirements. This leaves the door open to the domination of a few players at the expense of start-up