India’s latest budget, presented by the Union Minister of Finance Nirmala Sitharamanin February this year, makes a welcome policy push, encouraging the domestic production of batteries for electric vehicles (EVs), as part of its ‘mission mode’ approach to further manufacturing in India. Underscoring the government’s “commitment to climate-friendly development,” the budget makes a case for providing an enabling environment for supporting manufacturing in clean technologies, including EV batteries, solar photovoltaic cells, and grid-scale batteries, as part of the country’s transition to renewable energy sources.

A closer look at the policies listed for assisting EV battery manufacturing shows the government’s main thrust in this direction centres around providing customs duty exemption for 35 items of capital goods that are used in the manufacture of EV batteries, particularly of the lithium-ion variety.

S. Venkatraman, an expert in battery technology, describes the proposed duty exemption for capital goods as “a welcome development” that will help reduce capital costs for investors looking to manufacture EV battery cells “at scale” in India. Currently, India’s production of EV batteries is limited to the assembly and packaging of the batteries using imported cells, which actually supply the energy. There are, however, ongoing efforts by several companies, including at least a couple of established traditional lead-acid battery manufacturers, to set up cell manufacturing facilities.

Amara Raja Energy & Mobility plans to spend up to Rs. 95 billion as capital expenditure on its proposed ‘Giga Corridor’ near Hyderabad in Telangana state. The company has commenced work on setting up a pilot to manufacture lithium-ion cells at a 2 GWh (gigawatt hour) unit, which it expects will go on stream (start producing) later this year. The company’s current goal is to set up facilities for the manufacture of 16 GWh of cells by 2030, according to its annual report for the fiscal year ended in March 2024.

Similarly, Exide Industries Limited’s 100% subsidiary Exide Energy Solutions Ltd. has partnered with China’s SVOLT Energy Technology for lithium-ion cell technology and manufacturing know-how and is setting up a facility near Bengaluru to initially produce up to six GWh of cells.

Besides these two battery makers, Chennai-based auto parts maker Lucas TVS also plans to expand into battery-cell manufacture over the longer term and is reported to have invested Rs. two billion in manufacturing, and R&D. Solar photovoltaic panels (PV) maker Waaree Energies Limited intends to invest about Rs. 6.5 billion for setting up a 3.5 GWh lithium-ion advanced chemistry storage cell plant.

Additionally, the Tata group’s Agratas Energy Storage Solutions Private Limited is setting up a 20 GWh lithium-ion battery cell factory in Sanand in Gujarat at an investment of Rs. 130 billion.

A February 2022 report on Need for Advanced Chemistry Cell Energy Storage in India by NITI Aayog, the government think tank, along with RMI and RMI India, had forecast that even in a “conservative scenario,” battery demand, including for EVs would require India to house 10 gigafactories, each with an average annual production capacity of 10 GWh, by 2030.

“Since India has no manufacturing plants at this scale now, developing and rapidly scaling its advanced battery manufacturing industry is expected to require focused and coordinated public-private actions,” the report’s authors had observed at the time.

The government’s Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell Battery Storage, with an outlay of Rs. 181 billion, had in March 2022 identified three firms for setting up a capacity of 30 GWh within a two-year gestation period of up to December 31, 2024. However, the three PLI beneficiary firms, including Rajesh Exports, Reliance New Energy Solar, and Ola Electric Mobility, were yet to achieve their initial targets under the government’s scheme, promoting the Ministry of Heavy Industries to issue notices for the levy of penalties.

The government’s efforts to free capital goods imports for the manufacture of EV batteries from customs duty has to be viewed as another small step to enhance the attractiveness of investment in the sector in the wake of the PLI scheme’s slow start.

Still, the removal of import duty may only serve to “marginally” lower project costs for investors setting up EV battery cell units. “There may be about a 3-4% benefit on costs,” says an industry expert, who spoke on the condition of anonymity. “But it helps level the field for the non-PLI companies entering the segment and is favourable for the overall industry environment.”

The bigger challenges for battery cell makers will, however, continue to be identifying the sourcing for the raw materials required for these specialised advanced chemistry cells as well as securing the supply chains given the growing worldwide competition to establish battery cell capacities.

Navigating the supply chain

Currently, EVs are largely operating on batteries featuring either lithium iron phosphate (LFP) or nickel manganese cobalt (NMC) chemistries. However, both these chemistries involve trade-offs, and newer and more efficient cell chemistries are continuing to emerge, posing yet another challenge to potential investors. A McKinsey & Company October 2021 study pointed to the fact that gigafactory-scale production lines typically require three to six years to ramp up to full capacity, a factor that could potentially threaten the viability of a factory that opts for a ‘dated’ cell chemistry.

Some of the non-PLI players entering the battery cell space are said to be eyeing “cobalt-free” chemistries, given the environmental and ethical costs of securing cobalt supplies. The Democratic Republic of Congo accounts for more than 50% of the global reserves of cobalt and the extraction of the mineral in the African nation has been tied to the forced deployment of child labour and hazardous working conditions that have turned the spotlight on the human rights violations in the country’s mining industry.

The sourcing of the other critical minerals too will require battery makers or their vendors of cathodes and anodes to tie up, at least initially, with Chinese suppliers controlling a bulk of the supply chain, including about 65% of the production of the processed lithium required for cell manufacture.

India’s state-owned Khanij Bidesh India Limited (KABIL) is currently actively pursuing the sourcing of critical minerals such as lithium and cobalt from several resource-rich countries, including Australia (lithium and cobalt), Argentina (lithium) and Chile (lithium).

Companies such as Himadri Speciality Chemical are also investing in setting up dedicated facilities to manufacture LFP cathode materials and lithium-ion anode materials.

The 2025-26 Union Budget also has a proposal to allow duty-free import of cobalt powder and waste as well as scrap of lithium-ion batteries, a move that will likely help lower the cost of these critical materials for use in the battery cell sector after reprocessing.

The road to battery success runs through EV adoption

Ultimately, the viability and growth of the entire EV battery cell industry will hinge on the success of the electric vehicle market, where growth is yet to gain the kind of traction that would be required for India to achieve its goal of ensuring that EVs constitute at least 35% of all new vehicle sales by 2030.

At the end of 2024, the penetration of EVs in the country’s overall vehicle market had risen to about 8% from 6.8% the previous year, according to a JMK Research & Analytics report. To achieve the NITI Aayog’s conservative scenario goal of 35% penetration by 2030, growth has to accelerate over the next five years, and policy support has to deepen.

Unless the ecosystem for EV battery cell manufacturing scales up rapidly along with a concomitant expansion in charging infrastructure in the next year or two, India’s EV industry will remain vulnerable to supply chain disruptions as well as cost volatility.

The author is a veteran journalist with nearly 35 years of experience in reporting and editing.

Read more: Budget prioritises resilience and energy security, skips major green announcements

Banner image: An electric vehicle charging station in Begumpet, Hyderabad. Image by iMahesh via Wikimedia Commons (CC BY-SA 4.0).

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Kundan Pandey Editor

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