As part of my weekly assignment to improve our analysis skills, my father gave me the EV Market, specifically the Indian EV Market to analyze. So This is an analysis of the EV Market in general and the EV market specifically in India. The purpose of this analysis is to find out if investment in the EV Market is a good decision or not.
Why it matters
Despite the industry seeming to be completely normal, it actually has a hand not only in the future of the automobile industry but also in geopolitics. It is obvious that any country that controls the resources to make fossil fuel controls the world. However, Electric Vehicles and Solar Panels are their future replacements. Any country controlling the resources for these said technologies controls the world.
We can already see this happening with the US and China, investing billions into the research and development of new electric innovations. The question is, will these investments prove advantageous and does India have potential to have a hand in this powerplay?
The Ecosystem of Suppliers
- The cell manufacturing and battery packaging industry & BMS:
- EV Components Industry:
- Software and Telematics Industry:
- Auto OEMs (Original Equipment Manufacturers)
- Charging Manufacturing Industry
- Mobility Service Industry
Now out of all these suppliers, the most expensive and important part is the Battery Pack. They themselves take up to 35-50% of the whole EV’s cost. Now this is where geopolitics slowly starts coming into play.
The Battery Cell
To understand the importance of the battery and the hand it plays in geopolitics, we also must understand the making of the battery.
Now a battery cell is made of a “Cathode” (Which is what makes up the “+” side of a battery) and an “Anode” (Which makes up the “-” side of the battery.) and they both are separated by an electrolyte; sort of like a veil. Now we can go even deeper into Cathode and we find that it is made of Lithium, Cobalt, Manganese, Nickel. These chemical elements alone make up around ~51% of the total cost of the battery cell.
Out of these four chemical elements, the most important are Lithium and Cobalt. But why, if it is so expensive, must we rely on these chemical components alone? Well, in the periodic table, Lithium is the lightest metal that is available in solid state. Secondly, it is extremely efficient in terms of storing energy with an energy efficiency of 95%. Because of that, a Lithium battery can hold up to 3-8 times more energy than compared to its brother, a lead acid battery.
Cobalt on the other hand compliments Lithium in a perfect manner. Cobalt increases the energy density of Lithium. It also increases the longevity and safety of these batteries while also making them much more safer.
The Geopolitics of the Battery
Now as I mentioned, the country that controls the power source controls the world. And in this case, it seems that China is currently ahead.
Lithium mines are commonly found in Australia (55%), Chile (25%), China (13%) and Argentina (6%) in order from highest to lower. And surprisingly enough, these countries together are responsible for ~96% of the Lithium sold in the world.
Yet logically, doesn’t that mean Australia, Chile and Argentina are on their way to being the next superpower’s? However, strangely enough, all the countries except China, rather than selling their Lithium to the world, instead sell it off to China.
That is because of two reasons. One, Lithium has to be processed before being sold and also recycled before being sold again and unfortunately for them, China holds 60% of the global Lithium refining capabilities. Two, China holds most of the stake in these Lithium mines:
- 51% in Greenbushes Mine, Australia
- 51% in a Lithium Project, Argentina
- 2nd Largest stakeholder in SQM, Chile
- Heavy investments into Lithium, Bolivia
Even more surprisingly so, China produces 75% of the world’s Lithium ion batteries. This is because China holds 148/200 of the world’s Lithium ion battery mega-factories. But what about recycling? It is one of Lithium’s greatest advantages compared to Fossil Fuel. Isn’t it theoretically possible to just buy a ton of Lithium from China and simply recycle it? Unsurprisingly by now, China holds 66% of the world’s recycling capability.
Even in the Cobalt sector, China employs a similar strategy of staking in a Cobalt mine. 72% of the Cobalt in the world comes from the Democratic Republic of Congo and of the 19 mines in DRC, China, unsurprisingly, owns 15 of them.
So, It is pretty clear to say that China dominates in the EV sector globally, however the bigger question is: What does this spell for India?
EV Market in India
Before addressing the China’s monopoly and it’s affect on India, I think we must first take a quick glance into the state of EV Vehicles in India.
Market Trends
Upon reading on market trends for FY 2023-24 I found the results to be very surprising. The EV type to have the most market share is not Passenger Cars (with 2% market share) nor Two-Wheelers (with 5% market share) but Three-Wheelers holding a surprising 54% market share. (Source: Graph 1: Target Achieved Under FAME-II (%) in IJFMR) In the same financial year, India has sold 1.53 million EVs; a 46% increase over the previous year.
It goes without saying that three-wheeler EVs were found to be the most popular in urban and semi-urban sectors. The reasons behind this choice vary but most of them go somewhere along the lines of:
- The initial cost seems too high despite its better TCO (Total Cost of Ownership) compared to it’s internal combustion engine car counterparts.
- Another cause for concern is the limited charging infrastructure. However, this is slowly changing as the Indian Government new charging stations are being rolled out.
Because of these concerns, EV cars are usually seen as a second or third car rather than the primary one. (Source: Economic Times)
Government Subsidies
The Government also aims to promote EVs by putting into place multiple subsidies. These include the PM E-DRIVE Scheme and the FLAME-I and the FLAME-II Scheme. It’s safe to say that there is enough government support to increase the sales of the Electric Vehicles.
Now although even with these subsidies, EVs remain expensive, with the number of innovations done and expected in this field, it will surely come down. Perhaps, it might even be cheaper than it’s ICE counterparts.
The Affect of Geopolitics in India
As with any other country, India is left with no other choice but to rely on China for it’s Lithium battery supply. The real question is this; Can India break free out of China’s obviously-risky monopoly and become self-reliant?
Firstly, as of now it has no choice but to rely on China despite it’s risk. However, India can slowly start relying on it’s own resources. The method to do this boils down to three options:
- Alternatives to Lithium
There are attempts being made to create alternatives to the Lithium-ion battery. These include solid-state batteries, sodium-ion batteries and hydrogen fuel-cells. Despite these new innovations however, they each have their own limitations which have to be solved. - Lithium reserves in India
There are rumors of Lithium mines in Rajasthan and Jammu and Kashmir solving the issue of the reliance on China for Lithium. However there are two major flaws. One, it isn’t confirmed as of now whether actual lithium mines in the said locations are any feasible. Two, even if they successfully operate, we still need to solve the problem of Lithium processing and recycling factories. - Investments abroad
India can also possibly adopt a similar strategy to acquire stake in mines abroad as the Indian reserves are still in the “inferred reserves” stage and still require around 7-10 years for it to be fully operational.
Now back to the question we started with, is Investing into the EV sector good? Needless to say EV is the future of energy, the question is it also the future of India? Now despite China’s monopoly and risk it is still a viable option just because of the possibilities of innovations and development in the EV sector. The government is also trying to mitigate the said risk so though we must tread carefully, I’d say EV is set to give bigger returns and grow even larger.