GST rate cut drawing firms to EV business, but viability remains an issue

The availability of lithium-ion batteries will be a critical determinant of EV adoption by consumers

Last week, the GST council cut rate cuts on electric vehicles (EVs) from 12 per cent to 5 per cent and on electric chargers from 18 to 5 per cent, a clear signal that it proposes to forge ahead with its target of reducing urban pollution and crude oil import bill. Both rate cuts will considerably narrow the price differential between EVs and petrol and diesel vehicles. EV prices are expected to drop 7 per cent.

But narrowing the price differential is just one of the challenges to achieving the government’s grand mandate. The lack of a robust ecosystem, principally recharging stations, and domestic battery manufacturing capabilities, could well short-circuit the government’s stiff electric mobility targets. Most two-wheeler makers — Bajaj Auto, TVS, Hero and others — have been vocal on this point. Steffen Knapp, director, Volkswagen Passenger Cars, recently said his company doesn't think it possible to be part of India's electrification plan in the absence of supporting infrastructure.

Things could be changing now, with several public sector enterprises, private sector engineering and automobile companies as well as new-age start-ups venturing into the EV infrastructure business (see table). “Having such full-scale infrastructure would definitely push the buying decision in favour of EVs,” said Maxson Lewis, managing director, Magenta Power, an EV mobility solutions provider.

What kind of infrastructure is needed to achieve the government’s mandate that all three-wheelers and two-wheelers go electric by 2023 and 2025 respectively, and others except commercial vehicles, by the year 2030. One estimate by Nomura Research puts the investment requirement of charging stations at Rs 13,000-14,000 crore. Private sector start-ups alone are expected to add 50,000 to 60,000 charging stations over the next three years. Their contention is that given the initial low viability of the business, some sort of viability gap funding would be in order. In the second edition of its electric mobility policy (known as FAME 2), the government says it will allocate Rs 10,000 crore to set up charging stations to both public and private sector players.

“As a standalone business, EV charging stations is still a sunrise venture. It could be the future version of what gas stations are today, a money spinner, but only if investors are willing to wait," says a Tata Power executive. 

Others suggest pushing for low-grade charging at home, offices and other locations where vehicles stop – globally, these touch points account for 80 per cent of EV charging points. So far the only progress here has been a suggestion from the power ministry to state power utilities to facilitate such private charging points.

The availability of lithium-ion batteries will also be a critical determinant of EV adoption by consumers. Batteries account for over half an EV’s cost and, currently, are almost entirely imported from China. India would require six plants of 10GWh each by 2025 and 12 by 2030 to cater to this emerging market.

Niti Aayog CEO Amitabh Kant said the objective was to “first work on about 80 per cent of components of two and three-wheelers and buses and also push manufacturing of batteries in India". To this end, the government is likely to issue tenders to set up 50 GWh of battery manufacturing in India, which would attract around $50 billion in investment. “At present India depends on China for EV parts. However, by 2022, local production of cells will go up and even fuel cell might come to India,” says a Tata Motors Ltd spokesperson.

One of the Tata group companies, Tata Chemicals, has already announced that it will set up a 10 Gwh plant at Dholera, Gujarat. Several companies — established ones and new-age start-ups — are venturing into this business (see table).

Setting up local plants is only part of the challenge. As Amara Raja Batteries CEO S Vijayanand points out, only a high level of localisation will make the business viable. Currently, the raw material for batteries are not available in India. Battery chemicals account for 30-40 per cent of the costs of a battery pack, and the cell accounts for 25-30 per cent. Even a cell-to-battery assembly plant would improve value addition by 30-40 per cent. But India has such annual assembly capacity worth just 1 Gwh.

Companies like Amara Raja have, however, started back-end integration to accelerate the pace of localisation. The company established a battery pack assembly capability and looking at backward integration into cell manufacturing. Right now, its localisation level is 25-30 per cent at the battery pack level.

Exercises such as these are, however, time consuming and unlikely to match demand. Yet they are vital to the success of the government’s EV plans. As Vijayanand puts it, “India missed the magic of manufacturing consumer electronics and we also missed the magic of manufacturing in the renewable sector, such as the solar panels, but I think if you were to look at EVs, then as a country we cannot afford to miss the magic of manufacturing.”