India faces many challenges in building a competitive EV ecosystem from the availability of Rare Earth Magnets and battery localisation to supply issues and cost.
While sales of EVs have increased significantly in the Indian market with a rapidly growing market and indigenous manufacturers taking share, there is still work to do to make the value chain sustainable. Assembly and some structural components are becoming increasingly localised but there are key high-value components that are still exposed. One of the biggest issues is Rare Earth Permanent Magnets. These are key for traction motors to be efficient in EVs. Whether it be two wheelers, passenger cars, buses or commercial vehicles. China is a major player in the rare earth magnet space and dominates the global market. India does have large amounts of rare earth reserves but still imports much of its finished products. There have been issues with supply causing localisation timelines to be relaxed for motor manufacturing. To help with this, the government have rolled out a specific scheme with large funding to build sintered rare earth permanent magnets. They also plan to build special rare earth corridors in states with rich mineral deposits. This will help determine if India can truly become a value creator in motor manufacturing.
A complex issue is battery localisation. While there has been significant build up in India to assemble cells into battery modules, there is little cell manufacturing capability. There has been a huge increase in importing Lithium Ion cells and batteries. Again, China is dominating the market. Although there was a Production Linked Incentive scheme rolled out to help build large amounts of Advanced Chemistry Cell manufacturing in India, the amount actually coming online has been low. Most packs are still imported and active materials such as cathode and anode are almost completely imported. There is a preference for using Lithium Iron Phosphate which helps as we are not relying on scarce Nickel and Cobalt. Recycling schemes and the National Critical Mineral Mission are trying to help ensure long term security. Without improved cell manufacturing capabilities the import bill could go up significantly.
Other areas of supply issues include Semiconductors, Power Electronics and Specialised Materials. With these being dominated globally we face issues with cost volatility and geopolitical issues. Domestically, suppliers often struggle to compete with the cost, owning the technology and hitting value addition targets in incentive schemes. Cost is also an issue. High value components are imported meaning vehicles are more expensive than their ICE counterparts. Even with incentives and reduced GST rates, the cost is still an issue for mass market adoption. This means the higher costs are passed onto the consumer and reduces the competitiveness of Indian manufacturers.
There has been lots of work done in policy. Production linked incentives have been rolled out for the automobile industry, auto components and Advanced Chemistry Cells. Strategies have been put in place for critical minerals and new rare earth schemes. Structural components, wiring harnesses and some electronics have been localised. Industry reports suggest that many components (excluding batteries) could be almost 100% locally sourced by 2030. To be truly competitive we need to move away from assembly manufacturing and develop indigenous designs with advanced materials processing and owning the technology. This will require investment in R&D, closer relationships between industry and academia, diversifying international relationships to source minerals and improving current schemes.
India has the demand, growing manufacturing base, policy and entrepreneurial spirit to create a strong EV ecosystem. By improving the rare earth processing, battery cell and material and semiconductor capability whilst maintaining affordable vehicles we can move from being a large consumer and assembler to a competitive force on the global stage.