Increasing charging infrastructure, addressing high upfront costs, boosting battery manufacturing and alleviating supply chain challenges will build investor confidence

The transition to low carbon technologies in the global transport sector is making strong headway, with automakers embracing electrification and EV sales witnessing exponential growth. Transport decarbonisation is a central component of net zero ambitions worldwide, and for global climate action to be truly effective, India has a critical role to play. Given its rapidly growing economy and its population of almost 1.4 billion people, India is expected to add an additional 300 million vehicles to its roads by 2040—the largest car market growth of any country in the world, leading to a four million barrel per day increase in its oil demand (IEA 2021b).

India, too, has joined the global EV revolution, and aims to ensure that at least 30% of all new vehicle sales by 2030 are electric. In support of this target, the country has laid a strong foundation of national and state level EV policies, which have given a leg up to the e-mobility sector. However, for India to achieve this target, its EV market will need a considerable inflow of Foreign Direct Investments. Although investment in EVs and batteries is rapidly increasing in India, much more is needed. For example, a report by CEEW reveals that India’s EV and charging infrastructure investment needs in 2020 alone were $180 billion. But total EV investment announcements for 2021 reached only $6.5 billion, as per NITI Aayog. Between April 2020 and March 2022, according to Invest India, the sector attracted equity inflow from FDIs of $32.84 billion. This shows a significant gap between required and actual investments.

Globally, it is estimated that automakers are planning to spend over $500 billion on EVs and battery production by 2030, much of which will be directed to China, EU countries and Germany. For India to become an attractive EV market for global investments, it will need to understand its drivers of and barriers to investment, so it can amplify what’s working well, and find solutions for areas that need upliftment.

A recent report by the International Institute for Sustainable Development and Invest India brings to light the perceptive of Indian and International investors on the main challenges and solutions for accelerating investments. The report interviewed 59 investors through an online survey to understand their confidence and concerns in investing in India’s EV sector. Most of the investors gave credit to the Indian government’s national policies and schemes, which have successfully accelerated growth of EVs in the two and three wheeler segment. Investors believe that policies like the FAME I and II, the reduction in GST on EVs and chargers to 5%, and offering tax deductions to first time EV buyers have been very well designed and implemented. While these have helped bring down upfront cost of EVs, there is a need to design more financing solutions for EVs. Investors believe that including EVs in the Reserve Bank of India’s priority sector lending (PSL), would significantly bolster investor confidence.

Some of the key challenges that India’s EV industry needs to overcome to become an attractive investment destination, as well as solutions, are:

Availability of sufficient charging infrastructure: Investors believe that lack of charging infrastructure is the second biggest concern among consumers in adopting EVs, after the high up front cost. They believe that despite government policies and subsidies, charging infrastructure in India is not growing fast enough to support or accelerate EV demand. Land availability for charging station development, electricity grid readiness, and difficulty working at the local level to support required infrastructure are considered the top challenges in scaling up investments in charging infrastructure. They also feel India’s public investment in charging infrastructure lags behind over other countries, and are concerned about the financial viability of Indian DISCOMs and their capacity to invest in the capital needed for charging infrastructure.

Battery swapping could address high costs of EVs: Investors believe that battery swapping could contribute to 30 to 40 percent EV growth in India if several conditions are met, including the introduction of government mandates and subsidies, policy frameworks that guarantee interoperability and safety, and battery swapping roadmaps for different segments. They also believe that swappable batteries would be half the size, require less lithium, last longer, and allow for better grid management compared with batteries individuals charge at home. The successful implementation of India’s Battery Swapping policy, currently in its draft stage, could be a game changer not just for charging but also to attract investments in the EV sector.

India has enormous potential in battery manufacturing: Experts and investors strongly believe the Production Linked Incentive Advanced Chemistry Cell (PLI-ACC) and PLI Auto schemes will accelerate EV ecosystem in India. Currently, India is not yet a large player in battery manufacturing, but the market potential for this manufacturing is enormous, and the sheer size of future demand should allow for economies of scale. NITI Aayog estimates that with a high penetration of EVs, India could capture 13% of the worldwide lithium ion battery demand by 2030. To meet this locally, India would need to install twenty six 10GWh battery cell gigafactories by 2030.

Supply chain challenges are a key concern: While on the one hand, investors feel confident of the policy support for boosting battery manufacturing in India, they are concerned about supply chain challenges derailing EV growth. India has no known reserved of lithium ion. China holds around 75-80% of raw battery material refining and global battery cell manufacturing capacity, and Taiwan accounts for well over half of global semiconductor manufacturing capacity. Investors highlighted that the top three supply chain concerns in India are indeed linked to the availability and price of battery cells, raw metals, and semiconductors. India’s ability to establish circular economy for lithium ion batteries will play a key role in alleviating this concern and building investor confidence.

India needs to address the skill gap in this transition: As the transition from ICE automobiles to EVs accelerates in India, there is growing concern about the skill differential between these two segments, especially given that the automotive sector is one of India’s largest employers for both direct and indirect employment. If the goal is to avoid job losses due to this transition, investors feel that initiatives to retrain the labor force are required.

The Indian government has made significant efforts to encourage the growth of e-mobility in India, including 100% FDI through the automotive route in the EV space, financial support through the Credit Guarantee Scheme for Start-ups (CGSS), and the Production Linked Incentive (PLI). This has created a strong environment for a globally competitive EV ecosystem in India. But these are still early years in India’s e-mobility journey, and the country needs continued policy support to see transport electrification through to a stage where EV growth is market driven.