(Manufacturing-led) Adoption of Electric Vehicles

Updated: Aug 12, 2018

It's not too hard to flush our roads with Battery Electric Vehicles (BEVs) – reduce the import duty to 0%, incentivize adoption (already being done through FAME scheme), and make it easy to re-sell electricity or classify charging as a service (has picked up steam recently). The real challenge lies in ensuring an indigenous manufacturing-led adoption.

Manufacturing localization cannot be taken for granted

We take a lot of pride in mobile revolution in India. However, as recently as FY17, we imported 14.3 Billion USD worth of phones and accessories. Similarly, rise of Solar has been driven by imported Solar cells and modules, primarily from China.

There is a sense of Déjà vu around Battery manufacturing as capacities continue to pile up elsewhere. As per the NITI aayog report, India will need USD 300 Billion worth of batteries to fulfill its electric vehicle ambitions. However, if we don't get manufacturing right, batteries could become the next oil for us.

Source: BNEF

In my view, with the right set of policies and incentives cell manufacturing (and possibly components) could be brought home.

1. Investment Incentives

Considering our import duty structures on completely built units, vehicles will likely be assembled in India but the same cannot be asserted for battery manufacturing. A well directed investment program tied in with GWH targets would help investors build a business case and seed a threshold ecosystem in the country.

2. Favorable duty structure

We need a long-term duty structure aligned with upstream manufacturing. As I understand, there is 0% import duty on batteries for BEVs and inputs including cells and materials have up t0 10% duty. This should change to say 10% duty on batteries by 2019 and 0% on all the inputs preceding battery pack assembly. Then from 2021, 10% on cells and from 2023 cell components could be considered (Even in US, LG chemical is making electrodes likely using imported minerals). Raw materials will need to stay duty free unless a discovery happens in India.

3. Demand Pooling

In addition to the demand-side incentives being provided under FAME scheme, demand for public and government transport could be pooled. Long-term pooled procurement with domestic content requirements (DCR) could provide 66 GWH manufacturing opportunity

4. Technology development

We hear a lot of claims on battery technology breakthroughs from across the world. Indian companies are yet to feature in that list. How do we accelerate technology development in India is a larger question that pervades multiple sectors. Within the context of BEVs, we will probably continue to see partnerships being forged with global companies. However, there is definitely scope for Indian companies to step up their R&D investments.

Auto and components industry is critical to India's economy. It contributes 7.1% to the GDP and employs 30 Million people. With such a vibrant industry BEV adoption on back of component imports would be a half-win.