Environment, GS-3, Uncategorized

Economics behind e-Vehicle Batteries


There are concerns regarding the economic feasibility of electric vehicles (EVs) for mass use, as India is seeking a transition from conventional fuel vehicles to EVs.

Transition to EVs:

  • Recently, the NITI Aayog proposed to ban the sale of all internal combustion engine (ICE) powered three-wheeler post March 2023.
  • It also suggested that all new two-wheelers below 150cc sold after March 2025 should be electric.
  • The Union Budget announced tax incentives for early adopters of EVs.

India’s Position on EV adoption:

  • India’s mobility market is driven more by two wheelers and hence EV adoption will be driven by two-wheelers rather than cars.
  • According to the NITI Aayog, 79% of vehicles on Indian roads are two-wheelers.
  • Three-wheelers and cars that cost less than ₹10 lakh account for 4% and 12% of the vehicles respectively.
  • The overall cost for two wheeler EVs is comparatively lesser since only smaller batteries are needed when compared to cars.

How to Make EVs Environment Friendly?

  • In conventional ICEs, petrol or diesel fuels the engine.
  • In EVs, electrons supplied by the battery fuel the vehicle and the battery itself is not the fuel.
  • The battery is a device that stores electrons/energy which is sourced from electricity.
  • EV charging infrastructure needs to be powered through renewable sources to make it truly sustainable.
  • Presently, most of India’s electricity is generated using conventional sources.
  • In 2018-19, over 90% of India’s electricity was generated from conventional sources such as coal.
  • Only around 10% was produced from renewable sources such as solar, wind and biomass.

Concerns of the Industry:

  • The automobile industry had objected to the proposal of NITI Aayog and called for a practical approach in framing electric vehicle-related policies.
  • There has been concerns that EVs are still not financially viable because of various costs associated with their manufacture and use.

Cost of the EVs:

  • The portion of the costs of the drivetrain of EVs is 4% lower when compared to ICE vehicles.
  • The drivetrain is the system in a motor vehicle which connects the transmission to the drive axles.
  • This is primarily due to less parts in the electric drivetrain.
  • However, the battery pack takes up nearly half the cost of an electric vehicle.
  • The predominant battery chemistry used in EVs is lithium-ion batteries (Li-ion).
  • No new technologies are available for immediate commercial usage.
  • The cost of key-components of the battery (the cathode, anode, electrolyte, separator, etc.) contribute almost 60% to the total cost.
  • The rest is contributed by labour charges, overheads and profit margins.
  • At present, cells are imported and “assembled” in India into batteries. It increases cost.
  • Setting up a Li-ion manufacturing unit requires high capital expenditure.

Decreasing Price of Battery Packs:

  • The price of these battery packs has consistently fallen over the past few years.
  • Technological improvements, economies of scale and increased demand for lithium-ion batteries are the factors responsible for the decline in price.
  • Fierce competition between major manufacturers has also brought down the price.
  • It is not clear if the battery cost can be reduced even further since the raw material cost makes up the major part of price.

Way Forward:

  • The cost of battery packs needs to be reduced significantly for any meaningful reduction in the price of EVs.
  • Any reduction in the cost of the battery pack will have to come from a reduction in materials cost or the manufacturing overhead since labour cost is comparatively lesser.
  • India needs to manufacture Li-ion cells in-house. Battery manufacturing in India is expected to grow as electric vehicles grow.
  • More focus needs to be given for electricity generation from renewable sources.

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