Electric vehicles set to get costlier from next year in India

While traditional automakers in India are reeling under a global shortage of semiconductors, the country’s electric vehicle (EV) makers, too, are now facing a shortage of lithium-ion batteries, a key raw material. The soaring prices of metals like lithium, nickel and cobalt, which are the primary constituents of the cell, as well as supply chain bottlenecks, are also pushing up the cost of batteries. 

Battery manufacturers say that prices have been increasing every quarter since the beginning of 2021. Compared to January 2020, cell prices have seen a hike of almost 30 per cent. The cell constitutes 70 per cent of the cost of batteries. So a 30 per cent rise in its cost leads to a 40-50 per cent increase in the price of the battery.

Meanwhile, the demand for EVs has been growing significantly in India. In November this year, 42,067 units of EVs were registered, the first time EV sales have crossed the 40,000 mark.

India doesn’t produce cells, which are a core element of the battery pack. The mines in Congo, the largest supplier of lithium, are not operational after the pandemic. And supply chain bottlenecks across the world due to disruptions in shipping have further exacerbated the problem.

Higher raw material costs could push up the average price of a lithium-ion battery pack to $135 per kilowatt-hour in 2022, a 2.3 per cent rise from this year’s level, according to Bloomberg NEF’s 2021 Battery Price Survey.

“In India, we buy finished cells from China, and China itself is facing a shortage of raw materials. That is why there is a shortage in our procurement. We increased prices by around 10 per cent in November,” said Samrath Kochar, CEO of Trontek Electronics, which makes batteries for two and three-wheeler EVs.

Kochhar, who counts Hero Electric and Okinawa among his customers, said that there will be a further price hike in March 2022. “The situation is not going to improve before 2023-24. The supply shortage will continue, leading to a price hike,” he said. 

While EV manufacturers have not passed on the entire price hike to customers, a fresh round of price rise by cell manufacturers will definitely lead to a hike in the prices of EVs, say industry executives.

Last month, Revolt Motors raised the price of its flagship RV400 electric bike by a significant Rs 18,000. Hero Lectro, the electric bicycle brand of Hero Cycles, also increased the prices of its products by up to Rs 5,000. 

“The price revision of our product line has been necessitated by external market factors such as increasing freight and input materials costs. It also ensures that our quality continues to meet customer expectations and global benchmarks," said Hero Lectro CEO, Aditya Munjal.

Most EV makers, especially those of two-wheelers, are currently dependent on imports for their raw materials, with a maximum localisation of 50 per cent. Hence, they have a limited ability to absorb price hikes, said an executive of a two-wheeler EV maker.

“The increase in government subsidies allowed many companies to absorb the input costs and keep prices static. But if raw material prices continue to rise, it will certainly be passed on to the customers.The IC (internal combustion) engine vehicle prices have also increased, even in the two-wheeler segment. So, gradually, there will be customer acceptance,” he said.

The government has recently increased the subsidy from Rs 10,000 per Kwh (Kilowatt hour) to Rs 15,000 per Kwh, and raised the cap on the incentive for electric two-wheelers from 20 per cent to 40 per cent of the cost of vehicles.

As the shortages continue, battery recycling efforts are picking up. The growth in cobalt recycling, for example, is being driven by a steady increase in commercial-scale recycling as more batteries reach the end of their lives. However, executives at battery recycling firms say that India lacks well-established collecting systems and regulatory frameworks to provide a sufficient secondary supply for manufacturers.

MG Motors, which plans to have a big play in the EV space, recently tied up with waste recycling firm, Attero Recycling, to reuse and recycle lithium-ion batteries in its electric sports utility vehicle (SUV), ZS EV. The company is planning to invest Rs 300 crore to increase its existing lithium-ion battery recycling capacity by 11 times — to 11,000 tonnes by the end of 2022,

“While existing capacities for metals like lithium, cobalt and nickel have maxed out, there will be considerable delay in commissioning new mines. We are in the business of supplying chemicals whose margins are improving due to this shortage. We want to take advantage of this and will be commissioning new capacity in the next 30 days,” said Rajat Verma, co-founder and CEO at battery recycling firm Lohum.