December 21, 2020

Expert talk: Why the next decade of EV mobility evolution belongs to India

Original article published in The Times of India

China has assumed a global leadership position across the and new energy materials sectors in manufacturing, battery materials and access to raw materials. Nobody is even close regardless of how countries and companies try to dispute the reality. But this didn’t happen overnight. And it wouldn’t have happened without the strategic government policies driving innovation in the private sector and state-owned enterprises.

While the rest of the world, including governments, automobile manufacturers and chemical companies, largely dismissed the technology rate of change and potential important strategic implications, China was planning, producing, and learning. And getting more capable and more dominant each year. China’s policies were anchored in 3 general objectives: 1) energy security; 2) technology & economic opportunity in key future industries; and 3) cleaner air. These should be the goals of every government one would imagine and we know the current government is pushing these areas forward.

As India sets a policy course for EVs, we can learn from China’s blueprint. There are several key ingredients that helped develop their early leadership- strict policy standards and enforcement, domestic manufacturing requirements and a very large non-4 wheeler mobility market. These ingredients turned out to be the magic recipe. With the right policies, India not only can achieve a leadership position in the EV and new energy materials industries, but can also significantly improve its energy security, technology and economic opportunity, and air quality.

The first part of the recipe is developing industry standards from manufacturing to recycling. China, almost by necessity based on the need to reduce its dependence on foreign energy and mitigate pollution, set a policy course to ensure its self-reliance across the entire EV value chain. The strict industry standards drove innovation early and then were constantly refined to re-set the goal posts. A critical foresight was the focus on the raw material and chemical processing supply chain. China, above all countries, realized that you can’t truly support domestic manufacturing or improve energy security without access to new energy materials – cobalt, lithium, nickel, etc – and be able to process them. The battery is the bottleneck.

Today, either directly or indirectly, China dominates the raw material and processing value chain. Global leaders such as Tesla also recognize this fact by their focus on securing long-term mining contracts and just recently announcing their intent to develop their own raw material and cathode and anode chemical processing capabilities. And Tesla, just like the Chinese, are focused on the monetary and strategic value of battery recycling to support future feedstock. India has no lithium, cobalt, or nickel – 100% import dependence across the raw material value chain. This makes India quite vulnerable and the best option to mitigate supply chain concerns is through recycling.

The government has made significant strides regarding e-waste recycling standards. But battery recycling is in its infancy and will become a huge and value recycling stream. The government will play a large role in what the country and industry is able to achieve in recycling. Strict recycling policies need to be set early in order to develop the procedures and capacity or the industry and the country and will miss a key opportunity. This requires the cooperation of OEMs, recyclers, battery manufacturers and the government standards body all working closely. Environmental standards, safety and responsibilities must be determined early so the country and the domestic industries can take advantage of this valuable access to battery raw materials and domestic chemical capacity. For example, GEM, a large Chinese recycler and cathode maker, supplies 20% of the Chinese cathode raw materials market capacity from recycled li-ion batteries. Recycled materials are truly sustainable and help develop a circular, independent and domestic battery supply chain for India.

The second part of the recipe is developing policies that advance domestic capabilities. India is the 5th largest car market, and the largest 2 and 3 wheeler market. And the solar market, also a large opportunity for battery storage, is 5th in overall global capacity and rapidly accelerating. Foreign companies see the opportunity just as they saw it in China. But like China, India should consider policies that favor developing domestic capabilities. In March 2015 China’s MIIT introduced the Standard Conditions for the Automobile Power Storage Battery Industry (hereinafter referred to as the Standard Conditions), that provided a list of recommended EV battery suppliers to domestic EV makers. This “white list” as it was referred didn’t include any foreign companies and provided a key protective element in developing domestic battery innovation and growth. The Indian government may not need to go to such measures, but it should ensure that any foreign partnership has strict domestic manufacturing requirements and strict enforcement oversight. It is a must to develop domestic capabilities across the EV value chain from manufacturing through recycling.

During the 5 year period while the white list was in effect Chinese companies flourished because they enjoyed a huge domestic market from 2 wheelers to buses to an emerging EV auto sector backed by strict government mandates across the EV supply chain. Many of these companies are now major exporters and global leaders. It would have been much more difficult to achieve this result if Japanese and Korean battery manufacturers, who were at the time much more advanced, could have entered the market early. India’s huge market domestic opportunity offers the same dynamics but policies and incentives must be set and enforced to drive this change Indian industry.

The third part of the recipe is rapidly accelerating the EV transition in 2 & 3 wheelers through policy initiatives. The foundation of China’s EV dominance emerged from 2 wheelers. Versions of 2 wheeler EVs appeared in China in the early 2000s and provided a unique market and innovation opportunity for supporting an emerging EV ecosystem. Fast forward to today and China accounts for over 250 million 2 wheeler EVs. But it also has greater than 95% of EV buses, the largest EV auto market, and global dominance in battery manufacturing and access to raw materials. The rest of the world is largely focused on 4-wheeler EVs because that’s really the only opportunity…and it’s developing slowly.

There is no large small mobility market similar to the one that exists in China or India. The very large two and three wheeler market is a true gift for India and one that no other market outside of China can replicate. India must take advantage of this unique market opportunity in developing its EV capabilities. In any nascent market there is the secret sauce of learning by doing. 4-wheelers are more complicated than low power vehicles and stationary storage. But from manufacturing to the supply chain to recycling there are tons of overlap between the 2 and 3 wheeler market and the 4 wheeler market. Build the foundation through small mobility and the 4 wheeler sector will grow stronger and faster. The other benefit of the 2 and 3 wheeler market is that the turnover is much faster than 4 wheelers because the batteries are designed to last only 30-50% of the typical 4 wheeler battery. While the rest of the world outside of China waits for EV batteries to eventually reach the used waste stream after 8 plus years, India has a huge opportunity to develop leadership in 2nd life and recycling technology and scale with the potential of millions of batteries turning over annually just from 2 and 3 wheelers. China is the dominant li-ion battery recycler globally due to their early focus on mobile phone batteries (still the largest feedstock) and now their access to a growing EV feedstock (mostly non-4 wheeler). Let’s develop policy that supports a true market advantage the rest of the world does not share.

The opportunity is there for India but adding a few ingredients could help immensely. We need strict policy standards and enforcement, domestic manufacturing requirements and an acceleration of the 2 and 3 wheeler EV market. These combine to create a magic recipe for India. This recipe not only ensures a position in the global EV landscape but vastly improves the possibility of energy security and cleaner air.