Today, 70% of India’s cell import share relies on neighbouring countries, posing a high risk as geopolitical tensions can impact business growth, making localisation even more necessary
India aims to localise its supply chain for Li-ion cells as it anticipates significant growth in the Li-ion battery market
However, challenges such as a lack of R&D know-how, a talent deficit, and the need for a resilient supply chain pose obstacles to domestic cell manufacturing capabilities
Li-ion cells are powering the world’s transition to EVs, and all countries, including India, are competing fiercely to reap maximum benefits from this transition by localising the supply chain. Today, 70% of India’s cell import share relies on neighbouring countries, posing a high risk as geopolitical tensions can impact business growth, making localisation even more necessary.
The Indian Li-ion battery market is anticipated to grow from 4 GWh in 2022 to 120 GWh by 2030. To keep up with demand growing at a 53% CAGR (from 2022 to 2030), cell manufacturers have to innovate and scale up at breakneck speeds. While talks on localisation have paved the way in the past year through the government-led PLI scheme and potential JV announcements, it is pertinent to look at the challenges holding back domestic cell manufacturing capabilities.
Li-ion technology is a niche segment that requires an extensive R&D skill set and expertise, which India currently lacks. While a few countries have taken steps to strengthen the R&D sector by funding home-grown solutions, India has yet to foster a competent R&D knowledge base.
Leading industry players and deeptech startups with indigenous R&D are bringing global technical expertise to India through JVs. But the need of the hour is a centre of excellence to bring in battery experts, EV veterans and policymakers from industry and government under one umbrella to avoid re-inventing the wheel and direct the collective efforts towards the indigenisation of cell manufacturing.
The Li-ion industry needs technical expertise across different domains and hierarchies. According to estimates, a 130-140 highly skilled workforce is required per GWh capacity, and despite having the world’s largest youth population with more than 1.5 Mn engineers and 24K doctorates graduating each year, India still has a talent deficit in the Li-ion cell industry.
Meeting such high workforce demand is challenging for companies and hence, apart from business objectives, the industry needs to invest in people development and leverage under-utilised talents, which would in turn help strengthen the talent pipeline.
Enabling A Resilient Supply Chain
A seamless supply of battery raw materials is critical to establishing a resilient end-to-end supply chain for Li-ion cell manufacturing. Through 2030, all aspects of the battery value chain are expected to witness revenue growth of 25-35% CAGR, indicating the importance of investments in upstream sectors.
While India’s recent discovery of 5.9 Mn tonnes of lithium reserves is a boon, it could take around 7-8 years to bring the mine to commercial production levels. To help localise long-term demand, India can implement a policy similar to the European Green Deal, in which equipment manufacturers have access to an innovation fund to expand their capabilities.
Energy Supply To Meet Demand Spike
Gigafactories are highly automated and run under controlled conditions, demanding high utilities. One GWh of cell production needs around 50-65 GWh of energy, which might in turn be a significant addition to India’s energy supply as rural areas still lack 24×7 access to electricity.
Geopolitical tension and climate change also put significant pressure on energy demand and supply, thereby requiring strong strategic initiatives and pivoting towards renewable energy to secure future supplies. While MNRE aims to install and commission 450 GW of renewable energy by 2030, the energy demand spike may outpace the renewable energy installations and thus, again rely largely on coal.
Capex & Opex
Currently, global manufacturers spend $70-90 Mn/GWh to set up manufacturing facilities. ICRA estimates that achieving 60GWh cell manufacturing capacity in India will require an investment of $9 Bn or more over the next decade.
The low EV penetration in India, combined with the uncertainty of demand, creates a significant barrier to capital investment. Global players are announcing investments in leading regulatory markets such as the EU and North America, but none in India so far. Localising the supply chain would lower operating expenses, easing the capital-intensive nature of cell manufacturing.
The US government’s $270 Bn IRA scheme, which could reduce battery costs by up to $45/kWh, has enticed global manufacturers to accelerate investment in the US. India’s INR 18,000 Cr PLI scheme was the first of its kind, but benefits were limited to a select few.
While steps such as lowering import duties on capital goods and cell manufacturing equipment to 0% are encouraging, a comprehensive scheme that encompasses the entire battery value chain would provide the much-needed push. For instance, a rule similar to the UK’s ‘country of origin; laws, which require a minimum of 65% of cell components to be of UK/EU origin by 2027, could be considered for the Indian context.
In A Nutshell
To summarise, the challenges listed above can be tackled and addressed strategically through M&As, JVs and technical interventions, among others. The biggest benefit of cell manufacturing in India is avoiding the adverse effects of geopolitical events.
Deeptech companies and other leading industry players are already pacing up to manufacture li-ion cells indigenously and the industry has all eyes on the government to roll out new policies and incentives to facilitate setting up manufacturing facilities. Self-reliance and indigenisation will lay the foundation for India’s dream of becoming energy independent.