- The high price of EVs, the reason a major deterrent for consumers
- The production cost of EV dependent on imported battery material
- PLI and FAME II to foster local manufacturing of EV components
- Local manufacturing and decrease in procurement cost of EV components will reduce EV price
- The establishment of R&D units also needs to be prioritized to develop alternative battery solutions
Electric Vehicle or EV is the new buzz in the global sphere of mobility. India however may have jumped on the bandwagon towards electric transportation a little late but with the government’s rejuvenating focus and commitment towards cutting down CO2 emission by 35%, EVs have speared into the public consciousness like never before. However, the transformation of the buzz into a real-life scenario will take time – at least a decade – and this change needs to be fostered by incentives.
Presently, the main hindrance towards a large number of EV adoption in India is the high difference of cost between EVs and ICE vehicles. According to Inc 42’s report Electric Vehicle Market Outlook Report 2020, “cost of EV is a major deterrent for consumers when it comes to EVs. The average cost of an electric car in India is nearly 3 times that of comparable petrol or diesel-run cars.” Maruti Suzuki India opines, that the cost of EVs to be prohibitive for widespread adoption. Mahindra, MG Motor, and Hyundai are also planning to launch affordable EVs in the near future besides charging infrastructure. The reason for such a comparatively high price of EVs is the lithium-ion battery which accounts for 70% of the cost of two-wheelers and 50% of the cost of cars.
The materials used in these rechargeable batteries are lithium and cobalt which are available in limited resources in few countries like Bolivia, Chile, and Congo. China secured a supply of essential metals from these countries, purchasing mines in Congo, Bolivia, Chile, and Australia. It controls half the cobalt mines in Congo. With raw material supplies in place, China became a global battery and EV hub, controlling over 60% of the global battery market share. Because of China’s dominance in EV’s battery market share, India became dependent on China for its battery needs. India imported $1.23 bn worth of lithium-ion batteries in 2018-19, six times higher than in 2014-15, according to CleanTechnica, a US-based website dedicated to aggregate news in clean technology, especially sustainable energy and electric cars.
The problem of high cost and over-dependence on foreign countries can be tackled in two ways — by boosting local manufacturing and decreasing the procurement cost of EV components or by providing incentives to the buyers of EV so that the overall cost of ownership becomes lower.
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Schemes and Incentives
The Indian Government, with its PLI for lithium-ion battery manufacturing and Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles Scheme (FAME II), plans to discontinue this dependence on China to a greater extent. The announcement of the PLI scheme for the ACC battery sector, encouraged players like Suzuki, Toshiba, Denso, Exide Industries, TATA Chemicals, among others, to establish plants to manufacture lithium-ion cells and battery packs.
According to the PMP notification released by DHI in Sep 2020, xEV parts including motors and motor controllers need to be procured locally for FAME II incentive eligibility starting April 1, 2021. This notification is applicable across all vehicle segments – electric 2Ws, 3Ws, 4Ws, and buses. Effectively, only cells, thermal and battery management system can be imported.
India has also increased its import duty on lithium-ion cells from 5% to 10% and the assembled battery packs from 5% to 15% to encourage EV manufacturers to procure batteries locally. With the two schemes – PLI and FAME II – and increment of import duty, the government plans to launch a Phased Manufacturing Programme (PMP) to support setting up of a few large-scale, export-competitive integrated batteries and cell-manufacturing Giga plants in India and create a PMP for localizing production across the entire Electric Vehicles (EV) value chain.
Complete local manufacturing of EV components will still take at least a decade to be realized but the strategic localization schemes and incentives by the government are certainly two significant steps in the right direction.
Local Manufacturing and Reduction in Price
As stated above, the main hindrance towards EV adoption in India is its comparatively high price and this can be addressed by the creation of a sustainable local manufacturing ecosystem. Large-scale OEMs need to promote import substitution and indigenization.
Manufacturing units for lithium-ion batteries and other EV components like motors and motor controllers have been set up by companies like Exide Industries, TATA chemicals, and Electra EV, Altigreen Propulsion LabsVirya Mobility 5.0, among others. The establishment of R&D units also needs to be prioritized to develop alternative battery solutions like fuel cells, new battery-chemistries (with higher specific energy and energy densities), battery materials, and chemicals.
The cost parity between the traditional and the modern mobility solution can be addressed only by investing in the development of a local and sustainable manufacturing ecosystem. OEMs and governments need to coordinate their action for ease of sourcing, manufacturing, and financing in the EV value chain, which would increase confidence among the buyers to purchase EVs.