At present, India is at a nascent stage of creating a Lithium-ion cell manufacturing ecosystem. Preetesh Singh, Specialist CASE and alternate Powertrains – NRI Consulting and Solutions India, discusses the challenges and the need to develop supply chain capabilities for cell manufacturing.
PLI scheme for ACC manufacturing
Advanced Chemistry Cells (ACCs) are a crucial enabler of the clean energy transition. The demand for ACC technology batteries in India is expected to rise tremendously with the dramatic growth of the electric vehicle market, making the development of their local supply chains vital. The Government of India also realised the importance of developing the local supply chain for ACCs and devised incentive programs for optimum value capture.
The PLI scheme has set a requirement of a minimum of 25% value addition in the next two years and 60% value addition in the next five years. The value addition is the percentage of ACC manufacturing activity undertaken in India by the beneficiary firm either on its own, through ancillary units, or via domestic suppliers. The value addition can be validated basis of the certificate of value addition given by the Statutory Auditor in terms of generally accepted costing principles.
Cell component localisation and its importance
Most of the cost of a single cell comprises the cost of the cathode, anode, electrolyte, and separator. Hence, maximum value generation is only possible when there is local sourcing and processing of these components in India. The local manufacturing of cell components will also enable the 60% value addition target set in the PLI scheme.
A developed indigenous battery component manufacturing ecosystem will provide competitive benefits while contributing to India’s energy security. There is considerable potential for large-scale battery production, and the predicted size and growth of the country’s battery market are significant enough to justify investments from cell component manufacturers.
Cell component industry overview and challenges
While the PLI scheme has significantly pushed cell manufacturing companies, many concerns remain for individual component manufacturers. Indian and global companies are looking to enter the market, starting with anode and electrolyte manufacturing. However, there is a lot to be achieved. Key considerations of the companies looking to enter cell component manufacturing include:
Approval from global battery manufacturers: Potential anode manufacturers in India plan to get material approval from global players such as Panasonic and LG. Becoming a supplier of global players will ensure the security of the demand for the anode material being produced.
Exports to lead demand: Cell component manufacturers in India are making manufacturing plans based on the global scenario. Domestic demand from local cell manufacturers is expected to start in more than three years. If components are developed to fit the needs of the global market, there will be higher security for demand.
The active materials used in ACCs require sophisticated manufacturing processes that are cost-competitive only at a large scale. These supply chains have already been set up in other countries, such as China and South Korea, and setting the same in India will be challenging unless there is a sufficient scale. Moreover, most Indian companies lack actual know-how of commercial-scale cell component manufacturing and would have to tie up with overseas companies for technology assistance.
Some of the other challenges include:
- Lack of clarity on demand and chemistry: None of the Indian cell manufacturers has declared the chemistry of the cells they will be making, which leaves a grey area for cathode manufacturers to estimate the demand.
- Lack of government push: None of the Indian policies/schemes focuses on component manufacturing in India. Under the PLI scheme, all the incentives are for cell manufacturers.
- Unavailability of critical metals: India has no commercial mines for extracting critical metals required in Li-ion batteries. Even if cell and cell component manufacturing plants are set up in India, the raw materials will still have to be imported.
- Lack of proper financing: Financial institutions are likely to impose a risk premium on their investments, making low-cost financing a barrier. This will pose a threat, especially to smaller domestic players, as they will be unable to obtain necessary financing and will not be able to compete with companies importing.
As India strives to develop cell manufacturing capabilities to meet the upcoming massive demand for ACC, it is likely to face several challenges, including the development of a supply chain that includes the manufacture of anodes, cathodes, separators, and electrolytes. To meet the core objective of managing energy security and curb import dependence, developing these capabilities with as much local content as possible is critical. The supply chain players are not included in the PLI scheme. To promote faster localization, it is necessary to include them in one of the incentive schemes.
Special thanks to Jivesh Madan, Consultant and Mridul Agarwal, Associate consultant at Nomura Research Institute Consulting and Solutions, for their extensive contribution to this analysis.
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