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WEF India Economic Summit 2019: Investing In Lithium-Ion Battery Units Risky Due To Less Demand, Says Amara Raja’s Jayadev Galla

Amara Raja Batteries is apprehensive of setting up lithium-ion battery units in India due to lack of demand, says Jayadev Galla.



Lithium-ion battery cells are seen on the back-up system for the production line. (Photographer: Tomohiro Ohsumi/Bloomberg)
Lithium-ion battery cells are seen on the back-up system for the production line. (Photographer: Tomohiro Ohsumi/Bloomberg)

Amara Raja Batteries Ltd. is apprehensive of setting up lithium-ion battery manufacturing units in India due to lack of demand for electric vehicles, according to its Vice-Chairman Jayadev Galla.

It doesn’t make sense for the company to invest in lithium-ion manufacturing before demand picks up, Galla told BloombergQuint at the India Economic Summit. “We are very bullish about the future of electric vehicles in India. However, in the entire value chain, the investment required to manufacture lithium-ion cells is about 60 percent of the total capex required to manufacture electric vehicles. So, does it make sense for that to be invested first before there is demand or before the ecosystem is developed?” he asked.

The Bharatiya Janata Party-led government aims to turn 30 percent of the vehicles battery-powered by 2030 as the Asia’s third-largest economy looks to curb reliance on fossil fuel to lower emission. To push electric mobility, Prime Minister Narendra Modi had last year said that “charged mobility is the way forward for India” as the nation wants to drive investments across the value chain from batteries to smart charging to electric vehicle manufacturing. And lithium is an essential element in rechargeable batteries for electric vehicles.

But, according to Galla, it would be illogical to make investments in batteries anytime soon. “We would have a huge asset which has not been utilised properly and it could lead to non-performing asset problem like we have seen in other industries.”

The ecosystem has to be in place first so that there is predictable and a growing demand for electric vehicles before we get into cell manufacturing, the co-founder of the Hyderabad-based battery maker said.

While the government’s latest move to slash the goods and service tax rate on electric vehicles from 12 percent to 5 percent is good but that’s not going to help battery manufacturers, he said. “We need to see consistency in the government’s plans. There have been flip flops in the past five years. We have to see whether the latest approach of the government continues to be that way or whether there are changes because policy change can disrupt everything. There are a lot of risks involving right now and we are evaluating all those risks.”

The government should bring down the risk for producers by giving grants for setting up manufacturing units, Galla suggested. “When the U.S. first encouraged lithium-ion manufacturing, their Department of Energy gave grants to battery companies to build plants. In the case of our earlier partner, Johnson Controls, they built a $500 million plant with a $300 million grant from the government. If you give us those type of incentives, we will be ready earlier because it is bringing our risks down,” he said.

Watch the full interaction with Galla here.

Escaping The Auto Slump

India’s automobile sector is going through its worst slowdown in more than two decades amid falling consumption and liquidity crunch.

But, according to Galla, this has had very less impact on Amara Raja, the supplier lead-acid batteries to automakers. “Two-thirds of our production goes to the replacement market. Only one-third goes to original equipment manufacturers.”

He, however, said lower auto sales will mean lower replacement growth in the future in the next 18-24 months when the battery comes for replacement.

On electric vehicle charging hubs, Galla said the company had done a pilot in Tirupati, Andhra Pradesh where it is trying to build a business model first before they roll it out in other cities.