Battery-swapping policy for EVs may impact the spread of charging stations

The battery swapping policy could slow the market for zero-emission vehicles

In the latest Budget, Fin­ance Minister Nirmala Sitharaman said, “Consi­dering the constraint of space in urban areas for setting up public charging stations (PCS) at scale, a battery swapping policy will be brought out and interoperability standards will be formulated. The private sector will be encouraged to develop sustainable and innovative business models for ‘Battery or Energy as a Ser­vice’. This will improve efficiency in the EV ecosystem.” A new battery swapping policy is expected in two months.

There is no doubt that India needs a policy in place to exchange or lease batteries. But a “constraint of space for charging infrastructure” is no reason for New Delhi to push battery swapping, nor should swaps be used as a mechanism to expand the market for local battery makers. That’s because battery leasing fills only certain gaps in the EV ecosystem, and is not a mainstream solution. In fact, space can prove to be an equal, if not bigger, constraint for battery swapping stations. The battery policy must complement recently released charging guidelines rather than cannibalise it, which can end up hurting both kinds of fuelling businesses.

Consider the case of S Vijayan, a distributor of corn puffs. He recently bought a TVS bike for a little less than Rs 1 lakh, sufficient to buy an e-two-wheeler (E2W). His job involves dropping snack bags at shops, schools and cinemas every day. An EV would have proved cheaper in the long run. But Vijayan said that he couldn’t find any charging points in his locality, and it takes two hours for a partial charge. Asked about swappable batteries, he said he feared that he would get a dud battery in exchange for a new one, and he would only trust the warranty-laced battery that comes with a vehicle. 

“Indians are very possessive about vehicles. That psychology doesn’t allow consumers to accept battery swapping,” said Awadhesh Jha, executive director at Fortum Charge & Drive, a European energy company. Jha is setting up 3,200 charging points across India for a fleet operator, and has a battery swapping pilot for e-three-wheelers (E3W) in Noida. Charging networks are most prevalent globally, said Hemal Thakkar, director, Crisil Research.

Consumer psychology is key to finding the right fuel­ling strategy in a nation where the adoption of zero-emission vehicles has been slow. Globally, vehicle costs and charging infrastructure have hindered mass market adoption of EVs. It might seem easier and bring busin­ess to the battery manufacturers who are availing themsel­ves of the Rs 18,100-crore pr­o­­duction-linked incentive scheme to build 50 GWh of bat­tery storage in seven years, but battery as a service is not a mainstream fix. In fact, 76 per cent of Indians prefer charging at home, said Del­oitte India partner and auto practice head Rajeev Singh, citing an in-house survey.

Battery swapping works best for E2W and E3W vehicles, said Abhijeet Sinha, project director, National Highway for Electric Vehicle at EoDB, which operates India’s two biggest charging outlets of over 100 chargers each in Gurugram, and is running a pilot for charging points on highways connecting Delhi.

Swaps are a fantastic solution for E3Ws, Jha said, as the batteries can be standardised — because they serve a need and are not performance driven. For E2Ws, battery swaps may be restricted to fleets or delivery operators.

Passenger vehicles are not amenable to swapping. There are several issues, beginning with the battery itself. Batteries and battery technology are the biggest cost components of a vehicle, and key differentiators for automakers, said Thakkar. Standardisation of batteries will eliminate that advantage. Moreover, batteries weighing 250 kg or more and placed under a chassis will need robotic arms and special tools — an exercise demanding precision, and fraught with huge investments and risks, Jha pointed out.

Besides demanding high standardisation and interoperability to make business sense, battery as a service, even for E2Ws and E3Ws, faces financing hurdles. Autos and bikes are typically financed. But when the auto frame and battery are separated to make the sale, financiers are reluctant to fund the shell, Thakkar said. The frame and motor still account for half of a vehicle cost but are useless without the battery, and banks cannot dispose of a repossessed frame in case of a default.

Skewed tax structures also stifle battery as a service. The GST is 5 per cent if the battery comes with a vehicle; if sold separately, it is 18 per cent. This puts battery swapping operators at a disadvantage as they not only absorb half of the vehicle cost but also face a very high tax burden, thus making the business unviable, CII said in its latest report.

Today, we are still a fleck in the global EV horizon. China focused on building a charging infrastructure from the start. Just like the ubiquitous fuel pumps, China accorded priority to public charging stations instead of pursuing new fuelling methods. China has 2.6 million PCS compared to less than 2,000 for India. There is a PCS for every three EVs in China compared to one in 35 for the US.

China has earmarked $1.4 billion for charging infrastructure, with plans to add enough stations for 20 million vehicles by 2025. India by contrast allotted around $20 million in subsidies for PCS.

India’s EV sales last year crossed 300,000 for the first time, predominantly two-wheelers, and under 2 per cent of overall vehicle sales. China’s December sales of plug-in vehicles alone exceeded India’s annual sales. China sold 3.3 million battery-electric cars and plug-in hybrids in 2021, 15 per cent of all cars sold, and may reach 20 per cent this year, ahead of schedule.

India must be cautious while offering multiple e-fuelling options in a nascent market to avoid fragmenting an already small pie. Policy choices work in high-volume markets.

Charging operators in India are already facing low capacity utilisation of 3 per cent, Sinha said, threatening viability. In China, operators boost usage by deploying fast chargers to serve commercial fleets and logistics vehicles. Battery swapping threatens to pluck low-hanging EV fruit like E2W fleets and autos by making charging stations a tougher business to enter.