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Tuesday , 16 April 2024

India’s Evolving EV Ecosystem and Investment Opportunities

The debate surrounding the potential of electric vehicles has indeed evolved over the past few years, with significant growth and advancements in the EV industry. It is impressive to see the significant growth of the EV industry in India across various vehicle segments. The penetration rates in different vehicle segments highlights the increasing acceptance and adoption of electric vehicles in the country. Preetesh Singh, Specialist, CASE and Alternate Powertrains, NRI Consulting and Solutions India Pvt. Ltd. analyses the evolving EV market In India

Two-wheelers are often the entry point for many consumers in the EV market due to their affordability and practicality for daily commuting. Amongst 2-wheelers in calendar year (CY) 2023, penetration crossed 5% level with sales reaching 0.86 million units (excluding Telangana sales) at a YoY increase of 36.2%. Even though sales are largely being driven by mopeds and are yet to witness EV motorbikes, 2-wheelers as an overall segment is on the cusp of reaching a tipping point.

Three- wheelers continue to be fragmented in a rapidly growing market driven by e-rickshaw growth. However, 2023 also observed rapid growth of L5 autos. Four wheeler segment has witnessed an exponential rise with a 115% YoY increase in 2023 reaching greater than 82K vehicles in India. However, electric buses, as a segment, though observed growth in absolute numbers, decreased in terms of EV penetration.

The Dynamics of the Electric Vehicle Supply Chain in India

India has devised a three pillar strategy to promote local manufacturing ecosystem development for EVs – FAME-II, Import Restrictions & Fiscal Incentives or PLI to address the issues of import dependency and to support local manufacturers to develop the capacity to make and scale the EV components. The overall idea is to achieve maximum level of localization of components for which India has or can develop the capability with Government’s support and OEMs investment in EVs. It is important to improve the localization level of all critical components and will be the focus in India in future.

Largely it is the batteries, motors + invertors DC-DC convertors, and OBCs that encompass the costliest components in EV vehicles covering 70% of the cost of a 30kW battery size EV in the Indian market. Thus, the ecosystem around these components is central to understanding EV supply chain in India

As of 2023, the battery pack which remains to be the most critical component is still largely import-driven due to the import of cells and localisation limited to assembly-level operations including welding of bus bars, enclosures, etc. Traction motors coupled with invertors and transmission going by names like e-axles are also largely imported with a knock-down version of the component being imported for the large form factor of vehicles. A more detailed analysis of these components however leads to an understanding that India has reached sufficient volumes and capacity is being lined up for attaining a much higher percentage of localisation in the next 2-3 years.

With the government’s continued push for indigenization, it is expected that the EV component sector, especially batteries and charging equipment suppliers, will experience dramatic growth and will be sectors with one of the highest investment demands.

Unpacking India’s Battery Raw Material Landscape: Opportunities and Challenges

Raw materials are the lifeblood of lithium-ion battery (LiB) localization. Securing a stable and domestic supply of essential elements such as lithium, cobalt, nickel, graphite, and other critical components is paramount to reducing dependence on imports and achieving self-sufficiency in LiB production. Developing a robust supply chain for these raw materials is not only economically strategic but also vital for the long-term sustainability and competitiveness of the electric vehicle industry in a rapidly evolving global landscape.

Cathode Materials Scenario

Demand for critical elements is expected to exhibit moderate growth by 2030, with LFP chemistry taking center stage and advanced NMC variants gaining traction. Nickel and cobalt demand is projected to increase, but at a slower pace, due to the shift towards advanced NMC (811) formulations that utilize less nickel. Iron and phosphorus will emerge as pivotal raw materials, with estimated demand of 74 kilotons and 42 kilotons, respectively. These insights underscore India’s strategic trajectory in LiB battery manufacturing, with a focus on optimizing raw material usage, fostering sustainable chemistry choices, and aligning with the nation’s commitment to eco-friendly mobility solutions.

Anode Materials Demand

Graphite, the cornerstone of anodes for LiB cells, is expected to witness a steady rise in demand, but silicon-doped graphite is poised to be a game-changer, reducing the demand per kWh of energy produced.

Anodes in LiB cells are primarily graphite-based, but silicon-doped graphite is gaining traction, projected to increase its share from the current 30%. This transition is significant as Si-Gr anodes consume less graphite while offering improved efficiency. Source: IEA, Niti Aayog, NRI Analysis

As new battery technologies like solid-state batteries emerge, they are set to increase the lithium content in anodes. Conversely, sodium-based chemistries will usher in reductions in lithium content.

Cell Components Key Activities in India

There is a critical need to localise the cell supply chain. The cell materials constitute around 40% of its cost, and India has minimal availability of cell raw materials. If India targets to achieve 60% of the value addition (as mandated by the PLI), it needs to localise the manufacturing of anode, cathode, electrolyte, and separator.

Anode Manufacturing

The landscape of anode manufacturing in India is evolving with a dual focus on securing global demand and preparing for future domestic needs. Anode manufacturers in India are actively seeking approval from global battery manufacturers, as this collaboration ensures a steady demand for domestically produced anode materials. Export-oriented strategies are being adopted, as it is anticipated that domestic demand from local cell manufacturing companies will take more than three years to materialize.

Indian-made anodes are poised to be competitively priced, making them attractive to battery manufacturers seeking supply chain diversification. Key players are investing substantially to expand their production capacities, with targets ranging from 20,000 to 100,000 MT by 2030. These efforts underscore the growing significance of anode manufacturing in India’s thriving electric vehicle and battery industries.

Way Forward – Industry Perspective

At OSM, we’re spearheading a revolution in the passenger transportation sector with our focus on electric three-wheelers. These vehicles are set to transform urban travel by offering an eco-friendly, efficient, and cost-effective alternative, perfectly aligning with the massive and growing demand in the passenger segment. India is likely to attract significant investment and focus from global OEMs and component makers towards the entire value chain of electric vehicles

Uday Narang,
Founder & Chairman, Omega Seiki Mobility

Cathode Manufacturing:

Cathode manufacturing in India is poised for growth, with companies preparing to enter the sector as demand matures and long-term supply contracts materialises. However, several challenges need to be addressed. The lack of clarity on battery chemistry poses a significant hurdle, as cathode production is closely tied to cell chemistry, making it challenging for manufacturers to estimate demand accurately.

Additionally, the absence of government incentives or schemes specifically targeting cathode manufacturing, coupled with the substantial investment required, presents a barrier to entry. Moreover, the limited technical expertise within Indian companies necessitates technology transfer agreements with overseas players to bridge the knowledge gap, while securing a stable supply of raw materials remains a pressing challenge.

In this evolving landscape, key companies are making strides. Altmin, in collaboration with ARCI, is set to establish a pilot plant for cathode materials in Hyderabad, Telangana. The company has also partnered with the Telangana government to initiate C-LFP active battery material production.

Electrolyte Manufacturing:

Electrolyte manufacturing in India for Lithium-Ion Battery cells is currently in its nascent stages, but it has been attracting increasing interest from both domestic and international companies. One notable aspect in favour of electrolyte production in India is the local availability of salt, a key component in electrolyte formulation. However, despite the accessibility of salt, procuring it from local sources may present challenges due to stiff competition within the domestic market.

On the flip side, the manufacturing of battery-grade solvents such as Ethylene Carbonate (EC), Ethyl Methyl Carbonate (EMC), and Dimethyl Carbonate (DMC) remains a hurdle, as these solvents are not produced locally in India and must be imported. Currently, only commercial-grade solvents are readily available within the country.

Similarly, the production of additives, another crucial component of electrolytes, faces the same challenge of limited local manufacturing capabilities, necessitating their importation. As the LiB industry in India continues to evolve, addressing these challenges and establishing a robust supply chain for electrolyte production will be pivotal in supporting the growth of the electric vehicle and energy storage sectors.

An advanced chemistry cell manufacturing was completely unknown in India a few years ago. India is expected to witness a massive growth in the battery industry due to government efforts through PLI, as well as the entry of traditional battery players and OEMs in the manufacturing of advanced chemistry cell. Batteries with LFP and NMC chemistries are the most common on the market right now, but they may eventually evolve into other chemistries like Na. The next ten years will witness extremely dynamic changes and massive investment in the field of advanced chemistry cell manufacturing.

Sunil Bhatnagar,
CXO-Lithium Project, IPLTech Electric P Ltd.

Separator Manufacturing:

The separator manufacturing landscape in India has attracted investments from global manufacturers, but there are several key considerations at play. To ensure demand security, long-term contracts with established non-start-up companies are crucial. This is because the domestic market is still relatively underdeveloped. Raw material supply remains another critical factor, and companies are actively scrutinizing potential suppliers to establish a reliable local supply chain.

Separator manufacturing is agnostic of Chemistry Cell, but it varies depending on the specific LiB application. For instance, separators used in Energy Storage Systems (ESS) applications do not require coating. Another key consideration lies in the choice between wet and dry process separators. Wet process separators cater to the surging demand for EV batteries, while dry process separators are well-suited for the growing demand in ESS, driven by increasing Renewable Energy penetration.

Current LiB recycling landscape – Leading players and commitments

Lithium-based battery chemistries are rising exponentially in India with the indispensable growth of EV automotive and stationary applications, including renewable integration with the grid, data centres and telecom, moving beyond the historical usage in consumer appliances. The total demand for LiBs in India is expected to cross 230 GWh by 2030 from a mere ~5 GWh in 2020.

The rising LiB demand is coupled with a need for a robust LiB recycling ecosystem primarily driven by the need to hedge 1) geopolitical supply chain risk associated with critical minerals like lithium, cobalt and nickel in batteries, 2) managing environmental hazards with untreated batteries and meeting sustainability goals with recycled material resulting in 55% GHG emission than using virgin materials from ores and 3) improved price discovery for LiB batteries.

LiB demand and recycling opportunity:

The LiB value chain needs to be analysed to evaluate recycling potential fully. Stationary applications and EV batteries are the two significant applications that will consume manufactured cells in the future. The cells entering into EV vehicles are either repurposed or sent for recycling applications based on the level of recovery. EV batteries used in large form factor vehicles like 4 Ws and Buses are more suitable for repurposing than 2 & 3-Ws.

Niti Aayog estimates that only ~30% of the batteries used in 2&3Ws are ideal for repurposing, considering frequent usage cycle and chemistries. This number can be as high as 60% in the case of private 4 Ws,. Typically, EV batteries are expected to have a life of 3-5 years post which it can be repurposed for stationary applications, being utilised for a similar period before ending up for recycling.

As a CPO (Charge Point Operator), with portfolio of Fast Chargers, we see a strong alignment with Battery Swapping Stations operators, as they would be complementing to charging business. There is an excellent opportunity for co-locating BSS at Public Charging Stations. The partnerships with private CPOs is becoming increasingly crucial to scale up infrastructure in the country. Also, the upcoming e-trucks and e-buses (private operators) will be a next big value proposition for CPOs to expand charging network aggressively. Over the next five to ten years, the charging infrastructure and swapping ecosystem as a whole offer substantial investment opportunities.

 Mohan, Head (EVCI), CESL

Annual LiB recycling and reuse volume in GWh:

Another 22 GWh is expected to add to recycling potential as per Niti Aayog, coming predominantly from stationary applications and remaining from EV batteries which is not successfully re-purposed. Based on chemistries and cell form factors, the specific energy at the pack level today varies between 140-200 Wh/kg. With the given specific energy levels, an overall repurposing/recycling capacity of ~40 GWh in 2030 translates to 0.2-0.26 Million tons of annual capacity by 2030 for recycling/ repurposing.

Charging infrastructure is one of the primary focus areas, and it is likely to receive significant attention and investment in the future. Various players, including automotive OEMs, are exploring the business opportunity as they try to manage the energy transition through business diversification.

EV Financing Status and Key challenges in India

Vehicle finance encompasses two primary risks: Asset Risk and Credit Risk. Asset Risk pertains to risks associated with vehicle performance, maintenance, and resale value, while Credit Risk assesses the creditworthiness of the customer. Currently, in the personal two-wheeler segment, banks and NBFCs charge 1-4% higher interest rates for EVs compared to Internal Combustion Engine (ICE) vehicles, leading to higher down payments and Equated Monthly Installments due to perceived higher asset risk.

Conversely, terms are nearly identical in the personal four-wheeler segment. In the commercial usage sector, determining loan terms is more complex as creditworthiness depends on asset utilization and business viability, leading to worse credit terms for EVs compared to ICE vehicles across all commercial segments due to elevated asset side risk.

Customer pain points in EV financing include higher initial down payments, increased interest rates and EMIs, limited financing options, and elevated insurance rates. These could be due to unestablished resale value of both the vehicle and battery, evolving battery technology, challenges in evaluating creditworthiness, and operational and maintenance risks associated with battery replacement. Operational and maintenance risks arise from the need to replace batteries after 4-5 years, constituting a significant portion of the vehicle cost.

A number of CPOs are entering this market as a result of the Government’s supportive policies, which have democratized the charging infrastructure industry. A few issues exist, such as state discoms’ poor knowledge of regulations and lengthy approval processes. Yet, the charging infrastructure business appears to have a bright future ahead of it, with significant investment anticipated. India should prioritize improving uptime and utilization over merely expanding the number of charging stations.

Awadhesh Jha,
Executive Director, Fortum Charge & Drive India Pvt Ltd

EV Investment Opportunity

India’s EV sector has witnessed the emergence of multiple start-ups and conventional players, including OEMs and OES (Original Equipment Suppliers), venturing into the EV space despite key challenges such as higher upfront costs and range anxiety. This growth is particularly driven by supply-side incentives from the government, which include performance-linked incentives (PLIs) for advanced Chemistry Cells and PLIs for Auto and Auto components. While early investments in the sector were primarily led by PE & VC firms in equity and grants mode, there has been an increase in funding rounds involving commercial and concessional debt since 2021.

In terms of sectors within EV, investments are being made into existing and new OEMs, EV component manufacturers (including battery midstream and recycling players), charging infrastructure companies (including those focusing on EV swapping), and EV financing. Additionally, investments are being directed towards Mobility as a Service players.

In 2022, the sector garnered $2.2 billion in equity and debt-based investments, marking a substantial rise from the $0.2 billion recorded in 2018. Notably, this total does not include investments made by major EV players like Tata Motors and Mahindra. Tata raised $1 billion from the TPG climate fund back in 2021, with the Abu Dhabi state holding company ADQ, and Mahindra & Mahindra’s EV arm raised $145 million from Temasek in 2023.

Overall, the numbers stood at $1.49 billion in calendar year 2023, with an overall reduction in investments across sectors due to a funding winter. However, the sector remains ripe for investment and growth, especially driven by demand-side factors such as increased penetration among 2Ws and passenger vehicles (PVs), as well as supply-side factors like the rapid increase in charging infrastructure and the entry of global players like Tesla and Vinfast into the 4W and PV market in India.

The latest government initiative, offering significant import tax reduction for global players, further amplifies the momentum. Additionally, on the upstream supply side, the Indian government delicensed mineral exploration for leveraging of the lithium ore mines in Jammu and Kashmir and Chhattisgarh for cell manufacturing in India.

Even though traditionally, investments in the EV sector have over indexed on OEMs, in 2024, EV component suppliers and battery ecosystem players have also raised a significant share of capital until March 2024. One notable example is Lohum, which secured $74.4 million through series B funding, specialising in battery recycling and expanding into cell manufacturing. Apart from component manufacturers and OEMs, EV financing players and electric MaaS providers have raised over $66 million, with 4W MaaS BluSmart alone raising approximately $40 million through a mix of conventional debt and Series A funding.

The government’s likely extension of the Electric Mobility Promotion Scheme (EMPS) into FAME-III is also expected to cover EV research and development and testing facilities, where a niche set of start-ups are emerging within the ecosystem in the country, requiring significant investment to scale.

The author acknowledges the support from Athul Nambolan, Consultant and Vanshika Singh, Researcher at Nomura Research Institute (NRI) for their extensive contribution to this Analysis

 

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