India has become the only developing country in the coveted Mineral Security Partnership (MSP), and this will enable it access to important minerals and metals that it needs to manufacture EVs, EV batteries and even semiconductors for sensitive electronics. The membership has been possible because of the good bilateral relations that it enjoys with the US and the group itself is designed to be a counterweight to China’s overwhelming dominance in the critical minerals value chain.
Fig. 1: India is now a member of the 14-member Minerals Security Partnership, and will be able to access critical minerals for its technical needs | Image: Telugurajyam.com
Countering China’s dominance
China’s dominance stems from the fact that it manufactures 35% of the world’s EVs and 77% of all EV batteries. It also processes 60-70% of the lithium used by the EV industry and around 90% of the rare earths, besides holding ownership stakes or procurement agreements with major lithium and cobalt mines in Africa.
Fig. 2: China’s by far leads the world in li-ion battery production for EVs and has enormous influence over its prices | Image: SCMP.com
Equally important is the fact that China is home to about 6% of the world’s known lithium reserves (for now) and around 37% of the global reserves of “rare earths”. These include Lanthanum, Yttrium and Dysprosium, and are critical to the manufacturing of not just EVs and their batteries, but also to semiconductors, wind turbines, consumer electronics, cameras and defense and aerospace equipment. In fact these metals and minerals are so important that they were included in the US Geological Society’s list of critical minerals (released in February 2022).
India’s list of critical minerals
India too has released its own list of 30 critical minerals. However, except for gallium, copper, potash, titanium, phosphorus, cadmium and graphite, India imports 100% of the other minerals. Even for the ones that India does produce, only 10-20% of their potential has been brought up to commercial extraction. This elevates significantly the importance of India’s access to the MSP.
Fig. 3: Australian and Indian delegates at a meeting to sign the mutual Critical Minerals Investment Partnership deal | Image: News18
Interestingly, India also signed a Critical Minerals Investment Partnership with Australia in March this year to secure a supply of lithium and cobalt (among other metals). Also Khanij Bidesh India Ltd. (KABIL) has been steadily engaging with the Lithium Triangle (the lithium producing region that spans Chile, Argentina and Bolivia) for lithium supplies, and India’s own discovery of 5.9 million tonnes of the metal in Reasi, J&K is set to be auctioned to developers by the end of 2023. How much of it is developed for commercial extraction remains to be seen, but given that India has been a late mover in securing its lithium, cobalt, nickel and rare earth supplies, the discovery of the J&K deposit and the procurement partnerships with other nations are welcome advancements.
Timely for India’s EV industry
India’s EV adoption gained strong momentum from 2021 onwards and the majority of the sales have come from e2Ws and e3Ws. They offer significantly lower costs of ownership and have been especially welcomed by delivery businesses. Reports also indicate that e2Ws in India should start to reach price parity with their IC-engined counterparts from 2027 onward.
However, this has been possible partly because the vehicles use components that are mostly sourced from China. The biggest cost of an EV comes from its battery pack, which can account for up to 60% of its retail price. But recent reports have suggested that some Indian EV automakers are being penalised for not following the Centre’s directive to source 50% of the components locally. While the automakers may be doing so to keep their production costs down, the practice needs to stop as it only prolongs India’s dependence on Chinese imports.
Fig. 4: Wind turbines, EVs and semiconductors are just some of the applications the need critical minerals | Image: The Hague Centre for Strategic Studies
Yet, the problem is, India’s li-ion battery manufacturing capacity possibly amounts to not much more than 1GWh a year, whereas the Centre’s PLI scheme requires the country to expand its output to 50GWh. Its EV industry too is projected to grow at a stellar CAGR of 49% through to 2030 and unofficially, the target is to have EVs account for 30% of all new vehicles sold by 2030 as well. Also, India’s FAME-II subsidies for EVs may be withdrawn, which will make it necessary for the EV and li-ion battery manufacturers to diversify their sources of raw materials to guard against a sudden hike in prices by a single supplier.
Besides, the country has a target of setting up 500GW of renewable energy capacity by 2030, most of which is anticipated to come from solar and wind power and necessitates the development of adequate energy storage capacity. The need to decouple from a dependence on China and rapidly grow the country’s battery manufacturing capacity is thus evident, and India’s entry to the MSP is therefore as timely as it was necessary.