Insights into Editorial: What is the economics behind e-vehicle batteries?
Introduction: Shifting gears in the transition to electric vehicles (EVs):
The NITI Aayog proposed to ban the sale of all internal combustion engine (ICE) powered three-wheelers post March 2023.
It also suggested that all new two-wheelers below 150cc sold after March 2025 should be electric.
In consonance with these proposals, The Union Budget has announced a bold move to make a transition to electric vehicles, and offered a tax incentive for the early adopters.
Its stated vision to leapfrog into an era of electric mobility and domestic vehicle manufacturing, led by public transport and commercial vehicles, is forward-looking.
It is also inevitable because poor air quality and noise pollution have sharply affected the quality of life, and pose a serious public health challenge.
Reasons for you to choose an electric car over a petrol or diesel vehicle:
- Charge up at home, at work and around town – electric cars can be charged anywhere there is a power point, just like charging your cellphone.
- Pollution-free driving – Battery electric vehicles (BEVs) don’t have a tailpipe and produce no exhaust emissions that cause local air pollution.
- Noise reduction – EVs are quieter than petrol or diesel vehicles.
- 80% reduction in CO2 emissions in New Zealand – this significant reduction in emissions is because 80% of New Zealand’s electricity is generated from renewable sources. There are also many other advantages to using this home-grown energy compared with using imported fossil fuels.
- Fewer lifecycle emissions – even when you take into account raw material extraction, battery manufacture, vehicle manufacture and shipping, BEVs emit 60% fewer climate change emissions over the full life cycle than for petrol vehicles.
- More efficient – electric cars can convert up to 90% of energy from their batteries into motive energy. This compares to 20% – 30% for a petrol or diesel vehicle.
Cost structures of conventional vehicles and electric vehicles:
- The portion of the costs of the drivetrain of EVs, the system in a motor vehicle which connects the transmission to the drive axles in comparison to the cost of the entire vehicle is four percentage points lower when compared to ICE vehicles.
- 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.
- For any meaningful reduction in the physical value of EVs, the cost of battery packs needs to reduce significantly.
- Even as the automobile industry had objected to the think-tank’s proposal and called for a practical approach in framing electric vehicle-related policies, there has been the worry that EVs are still not financially viable because of various costs associated with their manufacture and use.
Costs, charging infrastructure making it difficult for EV as a good value proposition:
- The predominant battery chemistry used in EVs is lithium-ion batteries (Li-ion). No new technologies are on the horizon for immediate commercial usage.
- The cost of the materials or key-components of the battery, namely the cathode, anode, electrolyte, separator, among others, contribute the most (60%) to the total cost. Labour charges, overheads and profit margins account for the rest.
- Labour is a relatively minuscule component of the overall cost. Any reduction in the cost of the battery pack will have to come from a reduction in materials cost or the manufacturing overhead.
Where does India stand on EV adoption?
In India, EV adoption will be driven by two-wheelers rather than cars in high numbers on because India’s mobility market is driven more by two wheelers. 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 vehicle population, respectively.
Two-wheelers will also need smaller batteries when compared to cars and hence the overall affordable cost.India needs to manufacture Li-ion cells in-house.
Now, cells are imported and “assembled” into batteries.
Setting up a Li-ion manufacturing unit requires high capital expenditure. But battery manufacturing in India is expected to grow as electric vehicles grow.
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, including coal, and around 10% was produced from renewable sources such as solar, wind and biomass.
In conventional ICEs, petrol or diesel fuels the engine. However, in EVs, batteries are not the fuel; electrons supplied by the battery fuel the vehicle. The battery is a device that stores electrons/energy which is sourced from electricity (majority is conventional sources).
Understanding specific local needs for early demand and adaptation will be the key to making effective targeted investments, matching demand and supply, and enabling quick returns on investments.
Way Ahead for shifting to E-Vehicles:
While the rate of electricity generated from renewable sources has increased over the years, more needs to be done for their adoption.
This is because the EV-charging infrastructure needs to be powered through renewable sources to make it truly sustainable.
Therefore, Affordable charging will make these vehicles and commercial three-wheelers attractive because operating costs are a fraction of petrol and diesel equivalents.
Swapping the battery at convenient locations with one that is pre-charged, especially for commercial vehicles that run longer and need a quick turnaround, is worth considering.
A longer-term policy priority has to be the setting up of lithium battery production and solar charging infrastructure of a scale that matches the ambition.