Electric vehicle (EV) sales in India have seen a significant upturn over the past two years, spurred by government support in the form of subsidies and increasing product launches.
ICRA expects at least ₹25,000 crore of capex for EV components in the next three to four years, for capacity building, technology and product enhancements. About 45-50% of this would be towards battery cells, according to the ratings agency.
EV penetration reached 4.7% in FY24, with much of it driven by the electric two-wheeler (2W) segment.
ICRA says demand for EV batteries in India is expected to reach around 15 gigawatt hours (GWh) by 2025 and 60 GWh by 2030.
"Battery cells are currently not manufactured in India, and thus most original equipment manufacturers (OEMs) rely on imports. Manufacturing operations in India are limited to the assembly of battery packs. To achieve mass-scale penetration of EVs and a competitive cost structure, India will need to create its own ecosystem for developing battery cells locally," says Shamsher Dewan, senior vice president and group head – Corporate Ratings, ICRA.
"However, multiple challenges exist for the establishment of a cell manufacturing ecosystem, the primary ones being technological complexity, high capital intensity, and raw material availability. The ability of battery manufacturers to enter into agreements/alliances with players across the value chain to mitigate these risks, coupled with the creation of a robust framework for recycling, would remain key," says Dewan.
ICRA predicts EVs to account for around 25% of domestic two-wheeler sales and 15% of passenger vehicle sales by 2030, translating into strong market potential for EV components. Accordingly, the rating agency projects the Indian e-2W component market potential to exceed ₹1 lakh crore by 2030, while the e-passenger vehicle (e-PV) component is foreseen at another ₹50,000 crore at least, in terms of revenue potential for ancillaries.
"The PLI scheme, recent e-vehicle policy and state incentives would also contribute to accelerating capex. The larger projects (especially for battery cell localisation) are expected to be funded partly by debt initially. There is also substantial private equity interest in this space. Capex for components other than batteries is expected to be funded largely through internal accruals," Dewan says.
The EV transition would impact engine and drive transmission components. EV adoption could also have a bearing on aftermarket demand because of fewer moving parts. However, supplies to alternate applications, new products, and export opportunities are likely to mitigate the impact to an extent, says ICRA.
At present, only around 30-40% of the EV supply chain is localised. Chassis components that require minimal technology upgradation are manufactured locally. There has been substantial localisation in traction motors, control units, and battery management systems over the years. However, advance chemistry batteries, which remain the most critical and the costliest component, accounting for almost 35-40% of the vehicle price, are imported.
