India’s Electric Vehicles Dream Has An Umbilical Link With China
India looks to eliminate its dependence on Chinese imports following a deadly border skirmish. Yet, its nascent electric vehicle industry needs China, at least in the short term.
The year 2020 was going to be crucial for domestic EV makers as it came on the back of launches in the two-wheeler and four-wheeler segments. Demand collapsed due to the Covid-19 outbreak and subsequent national lockdowns, forcing original equipment and component makers to postpone investment plans.
India’s electric vehicle market is localised only to the extent of 40-50%, according to Society of Manufacturers of Electric Vehicles, as it barely comprises 1% of the overall automobile industry. About 1.56 lakh electric two-wheelers, cars and buses were sold in the country in the last financial year, up from 1.3 lakh a year ago. Of this, nearly 1.52 lakh were battery-powered two-wheelers.
“China has a significant play for India’s EV story and they’re strong in battery and in electronics,” Hetal Gandhi, director at the research firm Crisil, told BloombergQuint. “China has the scale of production, and leverages other electronic manufacturing sectors. They are also rich in reserves, like lithium, manganese, and are investing heavily in other countries where they aren’t, such as in cobalt.”
“If we look at domestic market our scale for EV manufacturing is not as large that we can meet those huge capex investments yet,” she said. “For us actually to work without China will take a considerable amount of time—about two to three years.”
India has been slow to push battery-powered transport and still lacks infrastructure like charging stations. The government, however, is looking to boost adoption by taxing electric vehicles at a lower rate. It also launched the second phase of FAME, a scheme to increase share of EVs in shared mobility to curb pollution in the nation that has most cities with the world’s dirtiest air. But the policy excluded low-end two-wheelers that account for most of the electric vehicles sold in India.
China, the world’s largest electric vehicle market, dominates the battery supply chain, with two out of every five battery manufacturers based in that country. These firms also have control of the necessary raw materials—that’s a stranglehold as batteries account for half of the value in EVs.
Apart from cells, battery packs and electric motors, Indian EV makers also import plastic spare parts and headlights. “Both motor and motor controller (device which controls the motor) too, China is the biggest market, and is becoming worth nearly $4 billion,” Maxson Lewis, managing director of Magenta ChargeGrid, a startup that develops and makes EV charging stations, said.
“While automakers have started working on localisation, it will take at least two years for the 100% localisation to shift not just to India but to move to any other country from China,” he said.
Ashish Modani, vice-president and co-head at corporate ratings at ICRA Ltd., said dependency on China will continue in the medium term as India doesn’t have the capacity and electronic manufacturing capability.
To be sure, 2019 was a watershed year for the sector, amid new launches, with even Chinese EV & SUV maker—Haima Automobile Co. and Great Wall Motors Co.—announcing their foray into India. Bajaj Auto Ltd. and TVS Motor Co. Ltd. unveiled their electric two-wheelers, while Tata Motors Ltd., Mahindra & Mahindra Ltd., Hyundai Motor India Ltd. and MG Motors launched electric cars.
But that was before Covid-19. As the virus ravages India, infecting at least 8.8 lakh people and resulting in over 23,000 deaths as on date, automakers and component makers are likely to defer their capex plans.
“Dynamics have changed. OEMs are focused on conserving cash right now,” Modani said, adding capex spends in the next 12-18 months will go down drastically. “Today, OEMs are cutting down on everything and given slower ramp up of EVs, plan will become the first casualty.”
Nirmal Minda, chairman of Minda Industries—which makes smart plugs, chargers and battery management systems—said his company’s investments towards EVs will be deferred by a year. “EVs will take a backfoot for at least a year or so,” he told BloombergQuint over phone. “The priority is survival of existing volumes.”
Minda said the industry has started de-risking from China. “Everybody will be really cautious towards investing in EVs right now,” he said. “It will be a little bit costlier initially, but it will stabilise over time.”
Kinetic Green, an electric three-wheeler maker, is also taking similar measures. Sulajja Firodia Motwani, the company’s founder and chief executive officer, told BloombergQuint that the firm has slashed its capex by nearly half and is focusing on B2B solutions as demand for public vehicle and fleet operators takes a dip.
She agrees other component makers will scale back their spends on EV parts. “Existing auto part makers are busy protecting their core business and might postpone their focus on power trains and motors etc. for the EV market.”
Rajan Wadhera, president of Society of Indian Automobile Manufacturers, said there’s no case for investment in EVs right now, even if one wants to invest in them. He said the government must work towards boosting investment if India is to not miss the electric vehicle technology curve and become self sufficient.
Others like Hero Electric and Ather Energy have deferred introduction of new products by about a year.
Ather Energy, however, said its dependence on China is negligible as it has a diversified supply chain, which is largely localised.
“For us, neither the cells nor the motors, controllers or other component comes from China,” Tarun Mehta, co-founder of Ather Energy, said. He said India can match China in pricing if it starts localising production of cells, but that will take time.
Mahindra Electric said it’s nearly 75% localised, and its reliance on China is very small. It has tied up with LG Chemical for making battery cells in Korea. “De-risking countries and having multiple origins of supplies will be the future,” Mahesh Babu, managing director and chief executive of the company, said. The firm, he said, will invest in making motors and battery packs.
The challenge, according to him, is what will come first—supply or demand—for India’s localisation to proceed.
Sohinder Gill, director general of SMEV, said EVs are a low-volume play and even smaller components such as plastics and chassis are high-volume businesses. “The cost when you have low volume goes very high, the cost per unit per body part becomes 3-4 times,” he said. “Volume is a vicious cycle which nobody is able to cut for EVs in India. The government needs to focus on initiatives to bring the demand so that the ecosystem can be built.”
Still, with an 18-month window and a bit of pressure on component makers, the EV industry can cut its umbilical cord with China and grow.
(Corrects an earlier version that misstated Nirmal Minda's first name.)