Uncertainty in battery cells biz demands realistic incentives from govt

In India, nearly all cells going into EVs are imported, and that's where the big challenge lies

Battery is a key product without which no country can unleash an electric vehicle (EV) revolution — including India that has ambitious goals.

That is why China lords over the EV market, accounting for 64 per cent of glo­bal sales last year. And that is possible because it also has a stranglehold in battery cell manufacturing with a 77 per cent share of global capacity. It also controls the battery components business.

Understandably, Ola Electric Founder Bhavish Aggarwal, India’s largest electric two-wheeler player, says while the DNA of his company was software it has also embraced a second DNA — control over cell technology by making it in India.

Aggarwal is not exaggerating the imp­ortance of cells. Unlike in vehicles running on the internal combustion engine (ICE), the lithium ion battery accounts for roughly 40 per cent of the vehicle cost. Over 65 per cent of the cost of the battery consists of the cell.

In India, nearly all cells in EVs are imported, and that’s where the big cha­llenge lies. On Monday, NITI Aayog and the department of heavy industry invited stakeholders for a discussion on the best way forward from a policy perspective.

India has not even begun cell production though around 300 GWh of capacity has been built globally to meet the requirements of EVs in over 12 countries last year. The expectation is that demand would hit around 4,300 GWh by 2030, the bulk of which would be for EVs.

To be sure, most countries are rushing in with incentives for domestic lithium battery cell plants to reduce China’s domination. Industry projections put the co­untry’s requirements at 70-100 GWh cap­acity (2 GWh is enough for one milli­on two-wheelers, for instance). That would require investment of around ~50,000 cr­ore to ~75,000 crore in the next five years.

In June 2021, the government ann­ou­n­ced a production-linked incentive (PLI) scheme for advanced chemistry cell batteries for 50 GWh of capacity with an allocation of ~18,100 crore. Many independent battery makers have also announced plans to set up lithium ion cell battery plants — Exide, Godi, Panasonic — with 100 GWh of capacity collectively, to come up in three to five years. The Tata group recently announ­ced a ~13,000-crore battery plant. There is, however, no independent assessment of how much capacity will actually come up on the ground.

Under the PLI scheme, players have to commission their plant in two years, achieve a domestic value addition of 25 per cent in the second year going up to 60 per cent in five years, and make mandatory investment of ~225 crore per GWh to be available for subsidies.

Yet, in two years, only three projects are off the ground — Ola Electric, Rajesh Exports and Reliance — with a total cap­acity of 30 GWh. Even in the best-case scenario, only half of that capacity will be available next year. Based on public statements, Ola and Rajesh will do 5 GWh each. And Reliance’s PLI incentives are for capacity of up to 5 GWh.

The government is now planning to invite applicants for the remaining 20 GWh (one player was disqualified) under the PLI. But battery makers have highlig­h­ted many issues about the scheme. Off the record, battery makers point to stiff value addition norms. Cathodes, requi­r­ed in the cell, account for 35 per cent of its cost and are not made in India.

“Global cathode makers say they will require a minimum of 50 GWh of capacity to service to make it viable to manufacture in India. So we will have to continue to import this critical component for some time and meeting the 60 per cent value addition norm in five years will be tough,” said a senior executive of one of the battery companies.

That apart, even the low micron levels of aluminium required for cells is a challenge — though some aluminium majors are working on producing metals to these specifications domestically.

Many battery makers have also raised the issue that given the substantial inve­stment required to make advanced cell batteries they would need an assurance for protection from global players importing into India, by raising customs duty. Currently, the duty is at zero because of a free trade agreement with South Korea and 5 per cent on imports from China.

Differences have also cropped up bet­ween battery makers and EV makers on the minimum capacity that a compa­ny can apply for in the upcoming PLI (in the earlier PLI, it was minimum of 5 GWh and maximum of 20 GWh). A top ICE pla­yer, which is also making EVs, says the minimum should be 20 GWh so that there is scale, which will bring down costs. Other battery makers said they want the 20 GWh to be divided among more players.

Some e-two-wheeler makers said it does not make any sense for them to invest ~500 crore to ~750 crore to build a 1 GWh plant making cells. “Today, the total market for electric two-wheelers is one million, and the viable size to make a plant is 2 GWh. This means we have to sell to our competitors, which is risky as most fire accidents happen due to the battery pack over which we will have no control. So what do we do with so many cells?” an executive pointed out.

Clearly, the government has its work cut out to bridge the demand between burgeoning cell requirements and its ambition to manufacture them domestically, despite starting from scratch.