NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

India’s electric vehicle (EV) revolution is here. With the Indian government urging local automotive manufacturers to switch to EVs – and subsidies and growing competition making them increasingly affordable – these vehicles are swiftly becoming the country’s favourite mode of transportation.

In the 12 months that ended in March 2022, Indian automakers sold 430,000 electric vehicles – more than three times as many as the previous year. Meanwhile recent – and likely future – surges in the price of oil are making EVs significantly more cost-effective than combustion-engine vehicles. Combined with their environmental benefits, which are particularly relevant in a country whose congested urban areas experience oppressive smog, EVs’ future is bright.

Below, I’ll explore six trends that are likely to shape the electric vehicle sector’s ongoing growth in India in the coming years.

India Rides on Two- and Three-Wheeled Vehicles

India’s transportation sector is very unique. Unlike most Western countries, Indian drivers predominantly ride on two-wheeled and three-wheeled vehicles like motorcycles, mopeds and auto rickshaws. With over 80% of the vehicles on Indian roads consisting of two-wheelers and three-wheelers, from an ecosystem perspective, these vehicles constitute the most promising path to widespread electric vehicle adoption. And the EV market is gaining substantial traction in this area: Though only 2.6% of the cars sold by Indian automakers from March 2021-2022 were electric, over 45% of the three-wheeled vehicles sold in this period were EVs.

There are Significant Shifts in Battery Capacity, Technology and Safety

The capacity of the battery packs used by Indian EVs is determined by various factors, including range anxiety, the time it takes to charge and the subsidy element – since government subsidies that incentivize the purchase of electric vehicles are linked to their battery capacity. Growing government subsidies encouraging higher-capacity batteries have helped push capacity from about 1.5 kilowatt-hours to 2-3 kilowatt-hours for two-wheelers, and from 4-5 kilowatt-hours to 8-10 kilowatt-hours for three-wheelers, as battery manufacturers aim to gain access to the higher subsidies that are available for these batteries. And more battery capacity leads to greater range for EVs, making them more appealing to a larger segment of the driving population.

There have also been quite a few developments in battery technology. The Indian market had been moving towards nickel, manganese and cobalt batteries – mainly because their higher energy density packed more energy into the same form factor. But the disadvantage of these batteries is that they do not perform well from a safety perspective. So after a number of vehicle fires in recent years, there has been a resurgence of lithium ferro phosphate batteries of late: These batteries have a lower energy density, but they are much safer. We at Cygni Energy believe this technology trend is going to continue, eventually leading to greater usage of solid-state batteries, which are considered to be even safer than nickel, manganese, cobalt and lithium ferro phosphate batteries, as they do not have flammable electrolytes. Similarly, in the next five to seven years, India will likely move toward silicon, metal or lithium anode batteries, which combine a higher energy density with the safety advantages of solid-state electronics.

The Indian government is encouraging this evolution, including through its recently finalized Advanced Chemistry Cell Production Linked Incentive scheme, which aims to incentivize the production of 50-gigawatt hours of lithium cells. This scheme is technology-agnostic in some ways: The incentive depends only on the energy density and cycle life of the cell, regardless of the chemicals or electronics employed – so the higher the energy density and cycle life of the batteries manufacturers produce, the better the incentive they receive. These batteries will help the EV sector to produce vehicles specifically designed for Indian conditions: The temperature range varies quite widely in the country, and as mentioned above, India rides mostly on two-wheelers and three-wheelers, which have less space. So advanced cooling mechanisms are difficult to implement when compared to an electric car, which can make two- and three-wheeled EVs more prone to overheating and fires. India is also a very cost-sensitive market, so while EVs have to be absolutely safe, they also must be affordable. These government incentives will help move the country toward the types of batteries that can boost EV uptake among more consumers.

EV Battery Safety Standards are Increasing

As discussed above, safety has become a paramount concern for Indian riders in the wake of various fire incidents in electric vehicles. In response, the country’s Ministry of Road Transport and Highways constituted a committee in May 2022 to formulate safety requirements for traction batteries (which are designed to provide power over sustained periods of time). The committee included experts from several renowned institutes of science and technology, and it recommended a number of amendments to India’s EV battery standards, which came into effect on October 1, 2022.

The most important of these changes is that manufacturers will have to make sure that all EV battery packs are protected against water ingress. Water can degrade batteries’ cell performance and seriously damage their materials, and can also corrode or damage their internal safety devices and cause their battery management systems to malfunction or fail. This can cause the battery to overheat, ignite, rupture or leak.

All battery packs will also have to include a pressure relief valve or a pressure vent, so that any gaseous leak and subsequent pressure build-up inside the battery can be released, thus protecting the pack. Several other changes aim to prevent overheating and fires, including a requirement for manufacturers to ensure that even if any of the cells in a pack overheat, it does not propagate to the rest of the cells and the battery pack remains safe. There is also a requirement for at least four temperature sensors to be included inside each battery pack, and for an audio-visual warning in case of a thermal event. Additional changes affect EV battery chargers and how they communicate with batteries during the charging process, further protecting against overheating and fires. All of these amendments will make both EVs and batteries safer, resulting in increased adoption of electric vehicles.

Costs Have Come Down Dramatically

The affordability of the battery itself is the most important reason for increased EV adoption. The cost of a lithium-ion battery used to be around $1,000 per kilowatt hour about a decade ago. Now it costs around $150 per kilowatt hour. The rise in the adoption of electric vehicles can be directly attributed to this reduction in the cost of batteries, which has brought the price of EVs down to a level that many consumers can afford.

Though there has been a recent fluctuation in lithium prices, battery costs are expected to go below $100 per kilowatt hour in the next few years. Coupled with rising fuel costs, this would further accelerate the pace of EV adoption. The battery opportunity for India alone is quite big: Based on various think-tank reports, the estimation is that total demand could reach about 80 gigawatt-hours by 2030 on the conservative side. In an optimistic scenario, total demand could be as high as 150 gigawatt-hours, with the demand for lithium-ion batteries alone far exceeding 25 gigawatt hours by 2026. These new-generation batteries could help boost demand for electric vehicles, and also for telecom applications, distributed rooftop solar applications and diesel generator alternatives as well.

The Role of Software is Growing

An EV’s lithium battery itself is a software- and semiconductor-intensive product. Today, an EV’s battery management system consists of quite a few algorithms to estimate the various states of charge, safety, function and so on. There is quite a bit of work required to make this battery pack data available on the cloud, where the presence of a digital twin of a battery’s data can optimize the performance of the battery pack. Several Indian companies are doing a lot of work to develop the cloud platforms and communication protocols that will enable this functionality. The role of software in this work is going to be extremely critical to the EV sector’s ongoing development.

Urban Mining is Becoming Increasingly Important

It is well-known that India does not have the raw material reserves required for battery cell manufacturing, whether it involves lithium, cobalt or nickel. The country is pretty much dependent on imports. This presents a huge opportunity in terms of lithium recycling – what is popularly called urban mining. India has over a billion cell phones, and tens of millions of other electronic gadgets. It has been successfully proven that over 95% of battery material like lithium, cobalt, manganese, nickel and graphite is recoverable, and this recovery can be done in recycling plants with zero effluents. The sheer volume of recyclable electronics means India could be the urban mining capital of the world. If this industry is set up successfully, the country could have enough recycling capacity to produce about 80-gigawatt hours of battery power by 2030. This could meet most of India’s battery power requirements, avoiding the need to import virgin material.

In summary, India’s EV inflection point is here. The country is well on its way to a future where electric vehicles are the standard option for consumers. As price volatility, political instability and environmental concerns – not to mention dwindling reserves – make fossil fuels an increasingly costly and unappealing option, the days of the combustion engine are numbered. Now is the time for consumers, businesses, investors and government entities to embrace India’s electric vehicle future.

Venkat Rajaraman is Founder and CEO of Cygni.

Photo courtesy of International Monetary Fund.