There has been a perceptible shift towards cleaner sources of energy globally, and one of the consequences of that has been a greater acceptance of electric vehicles.
A lot has been said about what the outlook for electric vehicles, but most investors would want to know which industry stands to gain the most from the scaling up of EV manufacturing and by extension, increased consumption of lithium ion batteries.
Now, what are lithium ion batteries? They are rechargeable batteries used for portable electronic and electric vehicles and find use in number of industries, consumer electronics, industrial, and automotive. Things you use on a daily basis, like laptops, notebooks, tablets, smartphones have lithium ion batteries in them.
The market size of lithium ion batteries in 2019 was $36.7 bn which is expected to grow by 18 percent and reach $129.3 bn. What will drive this growth? Well, EV sales are expected to reach nearly 23 mn by 2030, which is 30 percent of present sales. In India too, the number is expected to grow sharply from the current 2 mn mark.
As per a Bloomberg report, China dominates the lithium ion battery supplies with a demand of 72 Gwh and controls 80 percent of raw material refining, 77 percent of world's cell capacity and 60 percent of component manufacturing. Japan and Korea are the next in line and India stands at the 16th spot. Also, while demand for lithium has surged, many of the countries with the biggest-known reserves have yet to successfully commercialise the resource at scale. Bolivia tops the list of reserves followed by Chile, Us, Australia and China
India has quadrupled its imports of lithium-ion (Li-ion) batteries and more than tripled its import bill on the product in last few years. Indian imports of such batteries after increasing steadily in last few years to $712 mn fell to $450 mn in 2019-2020 as per Union Science ministry. India imports lithium ion batteries from china, Japan and South Korea
Lithium-ion battery manufacturing consists of three parts. First is cell to battery-pack manufacturing involving a value-add of 30 to 40 percent. The second is cell manufacturing with a value add of 25 to 30 percent. The third involves battery-chemicals with a value of 35 to 40 percent of the total cost of battery pack. While cell to pack manufacturing plants have started functioning, the others need to be encouraged. Niti Ayog says India will provide Modified Special Incentive Package Scheme (MSIPS) incentives and tax incentives for such manufacturing.
At the same time, India needs to secure materials used in lithium-ion batteries, including lithium, cobalt, nickel, manganese, and graphite. The Niti Ayog report also says, India needs a minimum of 10 GWh of cells by 2022, which would need to be expanded to about 50 GWh by 2025.
And to promote manufacturing, government has announced the big PLI for the lithium ion battery industry and a lot of companies like Tata chemicals have expressed interest of getting benefits under this scheme, Other cos like exide, amara raja etc can also possibly benefit from this scheme.
To promote indigenous development of such batteries, the Union Cabinet in 2019 approved a programme, called a National Mission on Transformative Mobility and Battery Storage in the NITI Aayog to "drive clean, connected, shared, sustainable and holistic mobility initiatives." The government also in the recent budget imposed custom duty of 2.5 percent on inputs, parts and sub-parts for manufacturing of lithium-ion battery and battery pack.
But the high price of lithium ion batteries make it an expensive proposition. Battery costs are anywhere between $150-$200 per kWh and $450/kWh depending on the type. The recycling of these batteries is another hindrance as it would not be as environment friendly and higher EVs would mean better infrastructure for the charging, where a lot of progress still needs to be made.