Lowering battery costs key to EVs taking off in India

By: |
August 18, 2021 4:40 AM

Important to bring battery costs down for EV prices to fall; govt must relax battery-PLI-scheme conditions

It is a fact that is not easy to do business in India and the government must try and address the many issues, among them, red tape and poor infrastructure.It is a fact that is not easy to do business in India and the government must try and address the many issues, among them, red tape and poor infrastructure.

India’s electric-vehicles (EV) market today is compact, with just three players accounting for 75%. But Ola’s entry promises to shake up the space. Indeed, the start-up’s launch has caused quite a stir. Demand, according to an estimate by McKinsey, is set to explode, hitting 8.2-9.2 million vehicles by 2030. That doesn’t seem a stretch given the financial push from government, the need for personal mobility and the stratospheric prices of fuel and the rising costs of ICE vehicles. A large player like Hero Electric, for instance, is hoping to sell 1 lakh units in the current year; the company commanded a market-share of a little over 40% last year. Analysts expect that, in about five years, EVs would account for 15% of the scooter market, with the share probably doubling in about ten years. Scale is critical to drive down prices and for manufacturers’ profits to remain stable.

The government recently upped the incentives available under the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme to Rs 15,000 per KwH from Rs 10,000 per KwH. The limit for the total benefit was also raised from 20% of the cost of the vehicle to 40%. Although the allocation for the incentives was a fairly big `10,000 crore, less than Rs 500 crore had been utilised. Now, state governments too are topping this up with further incentives. The Gujarat government, for instance, is offering a subsidy of Rs 20,000 per vehicle.

These are all welcome measures and will no doubt bring down the cost of vehicles. But for EV scooters to become really affordable for the masses, battery prices need to come down meaningfully. Currently, electric two-wheelers are priced typically between Rs 60,000 and Rs 1.5 lakh. That’s because the batteries are expensive and are the scooter’s most expensive component. This stretches the break-even period to around 2.5 years. However, if battery prices were to fall to even $150 KwH from the current landing cost of $210 per KwH, analysts believe the break-even could come down to a little over a year. For battery prices to come down, we need to make them in India. The production-linked initiative (PLI) scheme for advanced-chemistry batteries—of`18,100 crore over five years—was cleared by the Cabinet on May 12.

The government is hoping to attract an investment of Rs 45,000 crore to set up a capacity of 55GW for what is a technology-agnostic scheme. It is hoped that the response to the scheme will be good; some potential manufacturers have asked for changes to some of the conditions. For instance, both the net worth criterion at $30 million per GW and the minimum capacity requirement of 5GW—compared with the global average of 10 GW—are believed to be somewhat on the high side. Experts believe the Centre must consider some relaxations in the rules because it is important this scheme takes off quickly. Critically, the PLI scheme together with the investment-linked tax exemptions for the manufacture of lithium batteries, under Section 35AD, are expected to drive down battery prices to $60-70 per KwH. Once battery prices are down meaningfully, experts say, there could be demand for electric motorcycles too, which seems limited at present. In an environment of rapidly changing technology, however, the risks for manufacturers are not small.

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