India has set ambitious goals of becoming a significant player in the global electric vehicle (EV) battery production market. At present, India imports most of its lithium-ion battery cells and critical components, which constitute 75-80 per cent of the total battery costs. Domestic battery manufacturing remains limited to low-value processes such as assembly and packaging. As the demand for EVs is growing, India needs to address significant supply chain barriers and leverage its comparative advantages.
In November 2024, the International Institute for Sustainable Development published a report titled, “Unlocking Supply Chains for Localising Electric Vehicle Battery Production in India”. Renewable Watch provides an extract from the report, highlighting the current status, challenges and opportunities in this space…
Current status
Lithium-ion batteries are the most critical and expensive component of EVs, accounting for about 40 per cent of an electric car’s total cost. The global production is dominated by China, which controls 85 per cent of the world’s battery cell production capacity, along with over 90 per cent of anode and cathode manufacturing. Europe, the US and South Korea collectively hold less than 10 per cent of the market share.
At present, India’s lithium-ion battery manufacturing capacity is still at an early stage, with 18 GWh in 2023. This is expected to increase to 145 GWh by 2030. However, only 13 per cent of the total demand is projected to be met through domestic production, leaving the majority to rely on imports. At present, there are over 300 million vehicles on Indian roads and another 200 million are expected in the next two decades, leaving the country with an uphill battle to electrify its fleet and achieve the target of net zero emissions by 2070. By 2030, the demand for EV batteries is expected to skyrocket to about 108 GWh to 260 GWh, driven by increased EV adoption and grid storage needs. A few private companies have announced gigafactories, but large-scale production is still in the pipeline. Meanwhile, imports from China, South Korea and Japan remain critical in meeting the current needs.
The Indian government has been proactive in this space. It launched the Production-Linked Incentive Scheme for Advanced Chemistry Cell Battery Storage to accelerate the localisation of EV battery production. This programme, backed by Rs 181 billion in subsidies, aims to establish 50 GWh of domestic battery manufacturing capacity by 2026. This initiative seeks to reduce India’s dependence on imports, bolster energy security and establish a robust domestic battery manufacturing ecosystem.
Challenges
Despite recent policy initiatives, there are several challenges that persist in the localisation of EV supply chains. These include the following-
Shortage of skilled labour: The Indian battery industry faces a severe dearth of skilled professionals – designers, engineers and technicians needed for research, development and production. Training an engineer for lithium-ion battery manufacturing can take up to 18 months, creating bottlenecks for companies looking to ramp up production.
Gaps in testing infrastructure: There is a dearth of testing equipment and validation centres for advanced cells and raw materials used in battery cell production. Only one accredited facility – Bharat Test House – currently tests advanced battery cells in the country. This forces companies to send materials abroad, delaying innovation and commercialisation. Efforts to expand testing centres, such as the International Centre for Automotive Technology and the Automatic Research Association of India, are under way, but significant public and private investment is needed to cater to the existing demand.
Dependency on critical minerals: India relies heavily on imports of lithium, cobalt, nickel and graphite, exposing its battery supply chain to global price swings and trade restrictions. While the domestic iron ore production supports lithium ferro phosphate (LFP) batteries, lithium itself remains a chokepoint. This dependence exposes the domestic battery industry to price fluctuations and potential supply disruptions.
Need for recycling: India has a weak recycling infrastructure for lithium-ion batteries. As 90 per cent of the lithium, cobalt, nickel, manganese and graphite are recyclable, urban mining can help reduce the dependence on raw minerals in the medium term. India’s Battery Waste Management, Rules (2022) promote recycling, but the infrastructure to collect and process used batteries is still insufficient. With an estimated 128 GWh of battery recycling potential by 2030, a robust recycling ecosystem could reduce mineral dependence and environmental risks.
Complying with ESG regulations: Companies, which operate in international markets including the EU and the US, have to comply with strict environmental, social and governance (ESG) regulations. For example, the EU’s new Sustainable Battery Regulation includes mandatory carbon footprint reporting for batteries and supply chain. India will have to adopt ESG reporting, disclosure and certification standards to enhance export competitiveness.
Supply chain constraints for key machinery equipment: The majority of equipment manufacturers in India were operating at more than 95 per cent capacity in 2022. This leaves very little scope for expansion. Indian battery manufacturing companies entering this sector may face bottlenecks in securing equipment that could place their planned start of production at risk.
Trade and geopolitical considerations: India faces several geopolitical challenges in securing critical minerals and technologies, owing to China’s dominance in the battery supply chain, resource nationalisation in mineral-rich countries and localisation policies by industrialised economies. It is observed that countries with significant mineral reserves are imposing export restrictions and competing nations such as the US and the EU are incentivising their domestic battery manufacturing. Moreover, overcapacity of Chinese production has led to price distortions, making it difficult for India to compete in this space. Furthermore, restriction on the export of battery-grade graphite, a key mineral used in battery anodes by China, has revealed major vulnerabilities in the supply chain of EV manufacturers. Additional approvals are required to source graphite for anodes from China, thereby creating delays.
Localisation potential
There is a high import dependence for a number of cell components in India. This creates the need for localisation of components. The focus should be on the localisation of synthetic anodes, electrolytes, and cell casings and pouches, given the existing domestic capabilities, cost competitiveness and low intellectual property/tech reliance. These components are heavily import-dependent, but they also possess a high overall localisation potential and medium-to-high cost competitiveness.
Furthermore, India has low localisation potential for most of the equipment and machinery used in cell manufacturing. It has capabilities to manufacture basic equipment such as vacuum oven dryers and dehumidifiers, but the localisation potential for advanced machinery such as grading systems and internal resistance testing equipment still remains low.
In the short term, India is likely to depend on China for lithium-ion cell imports, until the domestic cell production scales up. Similarly, for battery components – cathode, separator and electrolyte materials – China leads in exporting to India. Thus, there are possibilities, going forward, for increased engagement with existing partners, including South Korea and Malaysia.
Policy recommendations
The report recommends the following to boost India’s battery production.
Encouraging innovation and R&D: There is an urgent need to improve research and development (R&D) in India. This can be accomplished by government support and incentives to commercialise the next generation of battery technologies, to seize potential opportunities. Developing centres of excellence at academic institutes and government laboratories on battery cells that focus on technology innovation and shorten the product commercialisation cycle; and accelerating technological advancements through university-led innovation challenges are some ways to accomplish this task.
Upskilling the workforce on battery technology: There is a shortage of trained professionals in cell manufacturing and recycling. To address this issue, Indian universities can partner with global innovation hubs to train their employees and develop a specialised curriculum focused on the battery supply chain. Centres of excellence can be established in technical universities to link industry and academia. Furthermore, targeted skill development and apprenticeship programmes with EV companies can give a booster shot.
Securing raw materials: At the domestic level, permits for domestic mining can be simplified, while maintaining high ESG standards, along with incentivising investment in mineral refining through PLI schemes. Internationally, free trade agreements can be negotiated with mineral-rich countries and consumer markets, besides forming trilateral partnerships with African and Latin American nations to enhance mineral sourcing and processing. Further, it is crucial to use tariffs judiciously and protect the nascent domestic industries, while pushing for technology transfer agreements with global players.
Attracting investments: India offers PLI schemes and state-level subsidies, but greater awareness and targeted measures are needed. This can be accomplished by extending R&D incentives for private sector innovation, introducing a dedicated PLI scheme for processing raw materials such as cathodes and anodes and promoting a circular economy by enabling battery recycling to recover critical minerals.
Boosting EV deployment: A strong domestic EV market is crucial for localising battery production. To this end, the government has already launched the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) scheme and the PM E-DRIVE scheme. Demand can be further bolstered by fiscal incentives for EV adoption in public transport fleets, priority sector lending for EVs to unlock low-cost financing, and reducing or exempting local taxes for EVs in order to lower their costs to consumers.
Conclusion
India’s ambitions to localise EV battery production are bold and achievable. With its growing EV market, a strong chemical sector and skilled workforce, India has the tools to succeed. By addressing key supply chain barriers and capitalising on its strengths – particularly in LFP production – India can emerge as a global leader in sustainable battery manufacturing. By addressing key supply chain barriers, leveraging trade partnerships and implementing targeted policy interventions, India can position itself as a leader in the global arena in this space. This transition will enhance energy security, create jobs and accelerate the country’s journey towards net zero emissions.