Sparking the EV supply chain: India trying to reduce dependence on China

The government and private manufacturers are exploring ways to reduce dependence on China for the supply and mid-stream refining of battery raw materials

Can India secure the global raw materials that go into the lithium-ion batteries that power the country’s surge in electric vehicles (EVs) when China rules the supply chain?

China, with which economic relations have been complicated by a long-running border dispute, controls a staggering 85 per cent of the global raw material capacity and dominates midstream refining of key raw materials from lithium and cobalt to manganese.
 

Like the US and Europe, the Indian government is getting its act together with other stakeholders to significantly reduce if not end its dependence on China.
 

Though critics say India has missed the bus, the NITI Aayog has worked out a strategy in coordination with various ministries and overseen by the Prime Minister’s Office.
 

Contrary to common perception, China’s powers do not flow from control over raw material but because it dominates the mid-stream refining of these minerals.
 

Take lithium. Over 50 per cent of the lithium is mined in Austra­lia, 13 per cent in China and 6-7 per cent in the Lithiu­m Triangle of Argentina, Bol­ivia and Chile. But China controls over 70 per cent of the refining of this key raw material.
 

Again, nearly 70 per cent of cobalt, another key battery input, is refined in China, though 70 per cent of the mines are located in unstable Congo. In nickel, China has 5 per cent of the mining capacity but refines 33 per cent of global capacity. In manganese, 99 per cent is refined in China for battery requirements.
 

To build an alternative supply chain, the government and private companies have worked out a three pronged strategy — ensure raw material supply directly from mines; shift mid-stream processing and key components to India; and rethink the mining policy which bans the use of many critical minerals.
 

As a first step, India is signing long-term supply contracts. It has done so with Argentina and is believed to have identified two lithium mines that it might take on long lease. State-owned Khanij Bidesh India Ltd (KABIL), which has been set up as a joint venture (JV) by government companies to oversee critical EV raw materials, is also exploring JVs with Bolivia in lithium battery and cell manufacturing.
 

Last year, KABIL also signed a three-year $6 million investment partnership with Australia’s Critical Minerals Facilitation Office for due diligence on lithium and cobalt mining opportunities.  
 

The free trade agreement with Australia could be a big game-changer. A senior executive of an EV company said, “We believe discussions are on to include these critical minerals under the India-Australia FTA, which would help us access them at a reasonable price.”  
 

Many sceptical stakeholders point out that KABIL’s mineral play will take time to show results. So some EV companies such as Ola Electric, which also manufactures cells, have started their own talks with mining companies to secure raw materials.

For other raw materials, the problems are easier to resolve. For nickel, there is already a robust supply chain for the domestic steel industry from Indonesia and Russia, which can be leveraged to make battery-grade quality. However, with Indonesia now banning nickel ore exports and processing them itself for the EV industry, things could get complicated.
 

In graphite, though China controls the mid-stream process for refining natural graphite, domestic EV battery companies are discussing with domestic steel companies the possibilities of converting coal-tar, a by-product in the steel-making process, into battery -grade synthetic graphite (in fact, half the world’s graphite is synthetic).
 

Yet the bigger challenge will be to shift large parts of the mid-stream processing of lithium to India, given that the bulk is still imported from China and Hong Kong. EV advanced battery makers say the principal issue is ensuring sufficient volumes in the EV market before global and Indian companies consider it viable to set up such operations.
 

“The volume requirement for mid-stream processing we estimate will happen when we have a penetration of 25- 30 per cent in two-wheelers and 10 per cent in passenger cars. That should happen in the next two to three years. There is no shortage of interest,” said an executive of an EV company that also makes cells for the lithium batteries in India.
 

Companies such as Ola Electric said it will help in this process by offering large offtake as it increases cell battery capacity. NITI Aayog projects that India would account for 13 per cent of the global battery demand by 2030 and that this would require 26 more giga-factories each of 10 KwH. So, India is a market material refining companies cannot ignore.  
 

China also dominates the market for key components such as cathodes, anodes and electrolytes. But the phased manufacturing programme, which gradually scales up customs duty, has been designed to protect local manufacture. That is why localisation of anodes, cathodes and electrolytes and separators is a key eligibility condition for companies such as Ola, Reliance and Rajesh Exports, which have qualified under the production-linked incentive (PLI) scheme for making advanced chemistry cell-based batteries. To ensure this, duties have been mandated to go up from 5 per cent in 2023-25 to 10 per cent from 2025 onwards.

But EV battery makers are also lobbying for a PLI scheme to encourage mid-stream processing of minerals to encourage global and Indian players.

On the third front — banning critical raw material mining — the government is said to be considering lifting the mining ban on lithium, which has been discovered in Karnataka, though the deposits may be small.
 

Auto components are also pushing for a reversal of mining bans on some rare earths like thorium for which India has substantial resources in Odisha, Andhra Pradesh, Tamil Nadu and Kerala. A by-product of thorium mining is neodymium, a key material required for making electric motors powered by permanent magnets. China accounts for 90 per cent of the global availability of neodymium. Meanwhile, the government is hedging its over-dependence on lithium ion as the sole battery technology. In the works is another PLI scheme for niche chemistries in battery-making, which would include upcoming solid state sodium batteries. If some of them work out, it would clearly reduce India’s dependence on lithium-ion and its supply chain. But when is the big question.