GS-III: Economics behind e-vehicle batteries

Context

• Shifting gears in the transition to electric vehicles (EVs), the NITI Aayog, in May this year, 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 announced tax incentives for early adopters.
• The automobile industry had objected to the proposal and called for a practical approach to framing EV-related policies.

How are the cost structures of conventional vehicles and electric vehicles different?

• The portion of the costs of the drive train 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 4% lower compared to ICE vehicles.
• This is primarily due to less part in the electric drive train.
• However, the battery pack takes up nearly half the cost of an electric vehicle.

How has the cost of the Li-ion battery pack cost evolved in the last decade?

• The price of these battery packs has consistently fallen over the past few years.
• This decrease is in part due to technological improvements, economies of scale and increased demand for lithium-ion batteries.
• Fierce competition between major manufacturers has also been instrumental in bringing down prices.
• The chart shows the change in the price of Li-ion batteries from 2010 to 2016. It is not clear if the battery cost can be reduced even further.
• Given that raw materials account for 60% of the cost of the battery pack, the room for further cost reduction is rather limited.

Where does India stand on EV adoption?

• In India, EV adoption will be driven by two-wheelers rather than cars in high numbers 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.

Are EV vehicles completely environment friendly?

• 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.
• 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.
• While the rate of electricity generated from renewable sources has increased over the years, more needs to be done for their adoption.