Industry Confused As India Takes The Battery Out Of EVs To Boost Demand

India aims to take the battery out of electric vehicles to boost demand, leaving makers of such automobiles confused.

The nation’s nascent EV sector needs scale to succeed as it barely comprises about 1% of the overall automobiles sold in the country. About 1.56 lakh electric vehicles, mostly two-wheelers and some cars and buses, were sold in the country in the year ended March 2020. While that’s 20% higher than a year ago, it’s less than half of what China sold in the first seven months of 2020 during a pandemic, according to a Bloomberg report. One of the key hurdles for India is pricing.

The battery accounts for nearly 35-40% of the overall cost of an EV. India’s latest plan aims to delink it from a vehicle’s cost and promote battery swapping. The battery could either be provided separately by vehicle makers or by charging service providers, as a service model. That will reduce price and, the government hopes, boost sales and fast-track the electric ecosystem in the world’s second-most populous nation with cities having the world’s dirtiest air.

A potential rise in demand for personal mobility during the pandemic could aid sales when electric two- and three-wheeler volumes are getting squeezed.

That’s a good plan on paper. Yet, there’s no clarity on standardisation of the battery, safety and quality regulations, crucial for the plan to take off, manufacturers and analysts told BloombergQuint.

Lack Of Clarity

The government’s intention is aligned with the new business of electric vehicles, but it’s halfway done, according to Maxson Lewis, managing director at Magenta Pvt.—a startup that develops and makes EV charging stations.

“Electric vehicle is a technology shift, and the government is treating it like a notification for a regular vehicle,” he said. Any change, Lewis said, must take into account the reality facing the nascent market.

For battery-as-a-service to work, battery and sockets needs to be standardised. “This (notification) could have been held back and could have come up with some basic standardisation norms,” Lewis said. “This has broken the industry apart, as everyone is waiting for more.”

Focus On Integration

Testing of batteries with vehicles is important, according to Saurav Kumar, founder and chief executive of Euler Motors, an automotive technology startup focused on commercial EVs. It’s required to make sure that a battery is safe to be used for a particular and is well integrated, he said.

To be sure, government notification says the vehicle prototype and the battery—regular or swappable—must be approved by testing agencies. “Yet, there’s confusion on how the testing is being carried out, is it being done separately and how does it impact performance,” Kumar said. “These are things we need to see.”

Vehicle Safety Concerns

Then comes warranty and safety. At present, an electric vehicle comes with three- to five-year warranty for the battery made by original equipment makers. But there’s no clarity on who will provide assurance for warranty and ensure safety of the battery, a spokesperson for Mahindra Electric told BloombergQuint. They are coordinating with the government to resolve teething issues over the new notification and bring in standard norms, he said.

Then there’s the issue about who controls the battery technology. Since EVs are more about the battery, its integration with the vehicle sets players apart from each other.

While what the government is trying is good model, the control of the battery has to be with OEMs, Tarun Mehta, co-founder of Ather Energy Pvt. Ltd., said.

“We can’t go in a situation where OEMs are forced to sell vehicles without the batteries because the technology is very nascent, and is evolving very fast,” he said. Mehta said since batteries are not standardised, which isn’t easy to have in a fast-evolving market, OEMs should be able to stand behind the complete solution.

“As long as OEMs build the entire integration (of the battery with the vehicle), it’s an interesting option. Manufacturers must have control of the entire battery integration system,” Mehta said. Ather is also working on an option where it will allow people to purchase the vehicle and not pay for the batteries and, instead, lease them.

Financial Implications

With cost of vehicles falling by 40% if batteries are removed, OEMs’ turnover will also fall.

Amit Gupta, co-founder of the last-mile mobility firm Yulu Bikes Pvt., said unless OEMs get a pie of the battery business, it will not make sense for them to allow third-parties to provide batteries. “An OEM is doing the hard work of making, selling, aligning and promoting the vehicles, and if they’re not getting anything from running the vehicle, then that is a big fight,” he said.

Finally, there’s the issue of taxation. The goods and services tax rate on EVs is 5%, but it’s 18% on the batteries, and for charging. “These anomalies need to be corrected,” Chetan Maini, co-founder and vice chairman of Sun Mobility Pvt., said.

Mani, however, acknowledges the potential. Based on partnership between EV makers and battery service providers, multiple models of leasing can operate that can provide continued revenue streams to the OEMs, he said.

According to Puneet Gupta, associate director at IHS Markit, the government's plan will spur EV sales. It will give flexibility to two-wheeler customers as they’ll not have to worry about the battery, and it can also propel the battery-swapping infrastructure, he said. “If you want to grow the two-wheeler and three-wheeler (market), this is the way forward.”

Swapping can reduce the recharge time from hours to just minutes, Maini said, adding that while the model will take time to find acceptance in the personal mobility space, it could triple sales in the fleet model.

Maini’s firm has tied up with the oil marketer Indian Oil Corp. Ltd. to set up 20 battery-swapping stations at its fuel pumps across 12 cities and is plans to scale it up by the end of this year.

“In personal mobility once the infrastructure comes, it becomes easy for companies,” Maini told BloombergQuint over phone. Recently in China, EV maker Nio Inc., launched a battery-leasing service that will allow drivers to buy an EV without owning the battery pack, based on the BaaS (battery-as-a-service) model.

“Business model evolution is important factor than can drive EV adoption,” Hetal Gandhi, director at the research firm Crisil Ltd., told BloombergQuint over the phone. She said as soon as the battery is removed off the game and a third party will take care of it, complexity levels will fall significantly.

“It will be a great booster for the EV industry, and acceptance levels will go up,” Gandhi said, adding it’s in the OEMs’ interest to come together and make the most of the model. “This could be a stepping stone.”