By Srinath Rengarajan of Oliver Wyman
Across all major automotive markets globally, we are witnessing a transformative shift to electric mobility. Even during the ongoing Covid-19 pandemic, while vehicle sales have dropped significantly in many of these markets, the uptake of electric vehicles (EVs) have bucked the trend in 2020.
Their role in decarbonizing the transport and mobility sector is firmly established through compelling arguments from efficiency, carbon footprint, and total cost of ownership perspectives. With an eye on meeting its climate targets, improving air quality, reducing the reliance on imported oils, and exploiting its energy surplus with an increasing renewable share in the mix, India is keen to follow this global trend.
At the heart of the shift towards a green society powered by clean energy, advanced battery technologies play a pivotal role. In EVs, batteries are not only the energy storage medium, but also crucial for determining performance, ensuring reliability, and gaining customer acceptance across metrics including costs, vehicle range, and charging speeds. Beyond e-mobility, they are also an important cog in the energy sector as stationary storage for applications like grid balancing and for power generated from renewable sources like wind or solar. Despite their importance, however, India has been largely reliant on importing battery cells from east Asia with limited local module and pack assembly operations so far.
Need For Local Gigafactories
Recently, the International Council on Clean Transportation estimated that to achieve a 30 percent sales penetration by 2030, India would need over 800 GWh of batteries. A similar number was also touted earlier by NITI Aayog and the Rocky Mountain Institute. It is imperative to establish local cell manufacturing facilities in India to support this scale of transformation for multiple reasons.
First among them is the local value creation perspective. Today, batteries represent 40-50 percent of the costs in a typical compact class electric car’s bill of materials, compared to ~30-40 percent costs in case of conventional powertrains. Even though battery prices are dropping globally through scale economies and advancements in product and production technologies, they could still represent about 30 percent of the costs by 2030. Relying on imported cells would translate to reduced local value creation, as well as a switch in India’s import dependance from oils to batteries. Concurrently, local manufacturing creates jobs, which provides a buffer against those lost in redundant engine, transmission, and component manufacturing plants.
Additionally, local cell manufacturing also has pragmatic considerations. Batteries are heavy and hazardous goods that can get damaged in transportation. This results in complicated and expensive logistics needs. Furthermore, local sourcing helps build supply chain resilience, mitigating potential disruptions and geopolitical risks, while supporting local demand. Adopting a broader view, Indian battery cells leveraging domestic manufacturing competences, factor costs, and geographic location would provide trade and export opportunities. Indian firms could also expand downstream capabilities to recycle cells, thus securing raw material access over the long term for the local gigafactories.
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