Local lithium-ion cell manufacturing holds key to rapid growth of EVs in India

Battery cells and lithium-ion batteries attract 18 percent GST, unlike EVs as a whole, which are taxed at only 5 percent.

Tata Motors, which rules private electric four-wheeler market, has just signed a Rs 13,000-crore deal to set up a lithium-ion cell factory in Gujarat, bringing into sharp relief, once again, the need for India to develop these batteries.

At the moment, India imports all its lithium-ion cells, which has kept battery costs high and hindered the widespread adoption of electric vehicles, which account for only 1 percent of overall car sales in the country.

Given the recent discoveries of lithium deposits in Jammu and Kashmir and Rajasthan, India’s lithium-ion cell manufacturing is set to receive a huge boost, with Tata Motors expected to be the first EV manufacturer to begin producing upwards of 20 gigawatt hours (GWh) worth of lithium-ion batteries in the next three years.

ALSO READ: What Rajasthan’s lithium reserves mean for India

However, Tata Motors isn’t the first company in India to make lithium-ion cells. That distinction goes to Bengaluru-based startup Log9 Materials, which recently inaugurated the country’s first lithium-ion cell manufacturing facility. Log9 however, is more keen on innovation in the cell manufacturing process and creating intellectual property than manufacturing lithium-ion cells at scale.

Ola Electric, a maker of electric two-wheelers, said last year it managed to do what no other EV maker in the country had done: develop its very own lithium-ion battery cell from scratch.

The company showcased a cylindrical device bearing the Ola name and stated that it intends to start mass production of locally manufactured and engineered li-ion cells by 2023. CEO Bhavish Aggarwal made it clear that local and, more importantly, in-house manufacturing of lithium-ion cells was the way forward.

These endeavours throw light on what might just be the need of the hour when it comes to EVs in India: large-scale lithium-ion cell manufacturing. At present, India imports 100 percent of its lithium-ion batteries, either as cells or as battery packs, the latter being sold exactly as is, after passing a few government-mandated tests.

Others use the imported cells to develop their own battery packs. Among them is Ather Energy, which has subjected its flagship scooter, the 450X, to 203 tests. Bottomline: control over the components of battery packs and lithium-ion batteries allows manufacturers to better engineer products to suit the local climate and environment.

In 2022, Ola’s Aggarwal took to Twitter to reaffirm a commonly held notion: that making lithium-ion battery cells locally is integral to producing EVs at the speed and scale that would allow India to be a major EV manufacturing hub.

India’s lithium-ion battery requirements are met almost entirely by China, Taiwan, Europe, the US and Japan, with batteries accounting for 40 to 50 percent of the overall EV cost. India is, at present, the world’s largest importer of lithium batteries.

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Battery cells and lithium-ion batteries attract 18 percent GST, unlike EVs as a whole, which are taxed at only 5 percent. After a draft proposal was sent by NITI Aayog, the Union government is considering lowering the GST slab on EV batteries to 5 percent, and is likely to implement the move soon with incentives geared towards promoting local battery pack and cell manufacturing.

In the Union Budget this year, Finance Minister Nirmala Sitaraman announced a waiver on customs duty on the import of capital goods required to manufacture battery packs. This means that a vast majority of EV makers should be able to sell vehicles at a considerably lower cost.

So, why is Ola keen to get into battery cell manufacturing at this stage, even before its FutureFactory has managed to hit full production capacity? The facility is set to make 10 million electric two-wheelers, 1 million electric four-wheelers and 100 GWh of batteries.

According to Ather Energy cofounder Swapnil Jain, the process of making batteries locally requires a very thorough and calculated approach and is something that Ather experimented with years ago.

“Lithium-ion manufacturing is a different ball game altogether. Even if we’re doing it, it probably makes sense to do it with a partner,” Jain said. “We’ve done it five years ago. It’s a very different thing to make one cell in a lab and scale it up to make millions of cells and ensure quality. And then figuring out the supply chain for the same. It’s capital-intensive and a different industry altogether. Best done with a partner to be able to do it right the first time.”

So why get into it at all? Up until now, even EV giants such as Tesla rely on partners like Panasonic, Contemporary Amperex Technology Co. Ltd. (CATL) and LG for the supply of batteries worldwide.

However, that’s likely to change very quickly. For starters, the rising costs of lithium, cobalt and nickel have hampered the EV supply chain globally. And for a country like India, the only way to meet growing demand for EVs is through localised cell manufacturing.

“At present, one in 10 scooters in India is electric. We could have gone up to 16 percent had there not been a supply chain issue,” said Jain.

Even Tesla CEO Elon Musk said recently the company will need to engineer its own battery chemistry. Musk said the EV industry needs to focus more on the battery supply chain and sees potential in manganese-based cathode.

According to Reuters, Musk announced in late 2020 that Tesla aims to halve the costs of EVs by producing its own batteries. After Musk decided not to bring Tesla to India, his floor plan for the immediate future became clearer with reports of Musk heading to Indonesia, not because of the size of its EV market but because the country possesses vast lithium and nickel reserves.

Then there’s the fact that several imported battery packs aren’t designed or tested keeping in mind India’s road conditions and temperature extremes. Log9, despite not benefitting from the government’s production-linked incentive scheme to boost EV battery manufacturing, is keen to make “battery technologies ground-up in India, specific to tropical world conditions,” according to cofounder Akshay Singhal (as told to Forbes India).

Only four companies out of 10 have been selected by the government to avail its Rs 18,000 crore PLI scheme to promote localised battery technology. Reliance New Energy Solar, Ola Electric Mobility, Hyundai Global Motors and Rajesh Exports have made the cut, with the aim of collectively providing 50 GWh of battery manufacturing capacity.

Panasonic, LG and CATL are yet to show interest in manufacturing batteries or partnering with Indian manufacturers, which are going ahead with their own plans to localise cell chemistry. Maruti Suzuki, which has so far shown great reticence towards entering the EV segment, will benefit from the joint venture between Suzuki Motor Corp., Denso and Toshiba, which will result in another Gujarat-based lithium-ion battery manufacturing hub, this one in Maruti Suzuki Supplier Park near Ahmedabad.

Exide and Amara Raja have also announced plans to localise cell manufacturing, even though they did not qualify for the government’s PLI.

India might be on war footing when it comes to lowering its oil import bill, but its lithium-ion battery imports are also a cause for concern. In the April-November period of the financial year 2019-20, India imported 450.3 million units of li-ion batteries.

For true energy independence, safer and cheaper EVs, and total parity between EVs and vehicles using petrol and diesel, local cell manufacturing is the only way forward.