The recent announcement by Ola Electric’s founder Bhavish Aggarwal that the company is working on producing lithium-ion battery cells to power its electric two-wheelers is a reminder that while our transition towards electric vehicle (EV) technology and product is progressing at a good pace, the supply chain management needs to move to a higher gear. Ola Electric, which is the country’s largest selling two-wheeler EV manufacturer, is building a 110-acre Gigafactory, with an initial capacity of 5 gigawatt hour (GWh), which will eventually be scaled up to 100 GWh, in phases. It plans to meet its need for batteries as well as supply to other customers, both in India as well as overseas. Since battery packs comprise 35-40% of the cost of EV two-wheelers, Ola is looking at vertical integration, which will help it in both scaling up its two-wheeler business as well as reducing costs.
Since India is the world’s third largest emitter of CO2, electrification of the transport sector and the shift towards EVs is seen as a means to achieve the target set by the government for net-zero emissions by 2070, the need for lithium-ion batteries is important. The demand for batteries will continue to rise as products get popular and newer players enter the market. For instance, Maruti may have zero presence in EV, but it plans to launch its first such product in 2025 and is expected to drive 20% of battery cell demand by 2035, just behind the current market leader, Tata Motors, at 22%. The share of EVs in the passenger vehicle segment today is around 2%, which is set to rise to 20% by 2030. In two-wheelers, the market share which at present is around 6% is projected to rise to 45% by then.
The outlook may seem bright on the product side, but the supply chain remains fragmented. With domestic production of EV battery cells still in a nascent stage, it is imported from China, South Korea, and Japan. According to S&P Global Mobility’s estimates, by 2030 only 13% of total EV battery cell demand will be sourced domestically. This underlines the need for auto manufacturers to invest heavily in domestic cell manufacturing facilities. The government is doing its bit through policies like production-linked incentive (PLI) scheme for advanced chemistry cell battery storage and the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles. Industry majors like Rajesh Exports, Amara Raja, Reliance Industries, and Adani Group also plan to build lithium-ion battery cell factories and ramp up domestic EV production capacities.
Domestic players and EV battery cell manufacturers in India are also forming joint ventures (JVs) with international cell makers, module makers, and pack suppliers. For instance, Suzuki Motor formed a JV with Toshiba and Denso in 2017 to construct a cell manufacturing plant in Gujarat. Such JVs and value chain integration will lead the industry to gradually build supply chains and reduce outsourcing. However, this needs to be expedited. The government and the industry should work together to ensure that the pace is maintained and targets are not missed. It’s important that as the industry evolves, advanced technologies and strategic partnerships are integrated as they are key to sustaining growth and achieving the electrification goals set by the government. Such a holistic approach will ensure a future where India is both a consumer and a crucial contributor to the global shift towards sustainable automotive solutions.
