Understand the Economics of Battery in context to EV Market

India is the 4th largest market in terms of automobiles and 2nd largest in terms of 2 wheel vehicles. India is also running the world’s largest clean energy program and now moving forward to achieve carbon neutrality.

In that case, it is obvious that India is going to be the biggest EV market.

In this report, we are going to explore how battery affects the price of EV and on what factors the price of battery depends.

According to a report published by Avebdus Capital, India could represent Rs. 500 Billion opportunities by 2025. If we follow the opinion of Mr. Kaushik who is the Director and Head of Avendus Capital, “Over the past decade, the economics of the technology used in this sector has improved significantly, and today, EVs make economic sense across multiple use cases. The inevitability of the transition to EVs is accepted by the world, however, the timeline of mass adoption is still a topic of debate. But we believe that we are moving quickly towards a mobility regime where EVs become mainstream“.

As per the report, the inflection point in the EV adoption rate in India will be dependent on not only the Total Cost of Ownership but also the Upfront cost of EV. And that’s because the Indian market is very price sensitive.

The cost of the battery is the driving force of the TCO. If the cost of the battery will be reduced, then the overall price of EVs can be lowered to a significant level, which may be equal to or less than the ICE models. That moment will be the inflection point for the EVs in Indian Market.
Apart from TCO, another factor that plays an important in the user interest is overall maintenance.

Everyone knows that the operating cost of EVs is very less in comparison to the ICE. This has been the main reason for all of the EV sales so far.

Recharging EV is more economical than fuel.

Now let’s understand how the battery is affecting the overall price of EVs.

Battery pack prices have rapidly declined over the past 10 years. According to the widely cited study by Bloomberg, the battery pack prices have dropped from USD 1,160/kWh to USD 156/ kWh between 2010 and 2019.

The price of the battery in the market depends on the chemical chemistry, scale of demand, and design. If we compare the Indian Market in context to the global market, we will see that price of the battery is different.

There are two main reasons for that: 

  1. The global average battery prices are heavily influenced by top manufacturers like Tesla – Panasonic who have completely different cost structures on account of material partnerships and massive scale of operation. 
  2. The global battery price is more focused on the large batteries (>10 kWh) but in the Indian market, the majority of batteries are of small size (<10 kWh)

The average price range of batteries in the Indian Market is between USD 180/ kWh to USD 250/kWh. The prices vary depending on chemistries, cell quality, BMS design, and thermal design.

2W batteries with a basic BMS and air-cooling cost between USD 190-220/kWh. The price will further rise if a smart BMS is added.

Because of the fact that the major share of the price of a battery depends on its chemical composition that’s why fast-charging batteries cost more than slow-charging batteries.

How does raw material contribute to the price of batteries?

Raw materials are the most important part of the battery pricing structure. Lithium and Cobalt are two important raw materials for cell manufacturing. These materials are rare and exhibit reasonably volatile pricing trends. There are only 8 countries that produce Lithium and of them, three – Chile, Australia, and China account for 85% of the total production. Four companies – Talison, SQM, Albemarle, and FMC control a majority of the Lithium production.

As per the Benchmark Mineral Intelligence, by 2027 there is going to be a supply v/s demand gap for lithium and because of that, the price of the batteries can rise. 

Cobalt is a very important mineral for the battery and as of now 70% of the Cobalt product is concentrated in the Democratic Republic of Congo. DRC is a politically unstable place and its mining process is always controversial.

Apart from DRC, the 2nd largest source of Cobalt is China what’s happening between China and India in terms of trade, we all know that.

In that case, it would be very interesting to see how govt. will draft policies to bring down the price of batteries.

Inhouse production and Outsourcing 

The cost of a battery is around 40% of the total cost of the EV which means that a battery is the single largest cost component in the EV.

The battery constitutes 40% of the vehicle cost, making it the single largest cost component in an EV. For an OEM, the battery sourcing strategy is an extremely critical decision. Apart from being the single largest cost component, batteries are critical for performance – Range, Power, Life, Safety, and Charging Time. Hence, tight control over battery sourcing is important. The importance of the battery is so high in an EV that it makes one believe that car manufacturer will have to insource the battery manufacturing in order to stay relevant in the market. 

But in reality, a large section of EV manufacturers prefer to outsource the batteries and this is because of 2 reasons.

  1. Most OEMs do not have the scale that economical battery production demands
  2. Cell technology development is cost-intensive and evolving rapidly. Hence getting into cell manufacturing does not fit into the risk profile that aligns with the business model of OEMs

Even though the manufacturer’s profit gets added in the battery manufacturing but the EV manufacturers ignore that extra cost.

It’s very much clear that if India wants to increase the EV adoption rate, then India has to focus on battery manufacturing. 

Lower battery prices will lead to low-cost EVs which will further increase the EV adoption rate in India.