India dialling China for its lithium-ion cell ambitions despite tensions

Despite India's recent lithium discoveries and the government's push through a production-linked incentive (PLI) scheme for advanced chemistry cells, Indian battery manufacturers are turning to China for essential know-how and materials needed to kickstart their production.

Advanced chemistry cells are very small cells used in lithium-ion batteries, and can store electric energy as chemical energy, and convert it back to electric energy when needed.

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Amara Raja Energy & Mobility Ltd, one of India's leading automotive battery makers, is the latest to secure a partnership with a major Chinese lithium-ion cell maker. Amara Raja has inked a licensing agreement with Gotion-InoBat-Batteries (GIB), a unit of China-based Gotion High Tech, to produce lithium-ion cells, more specifically cylindrical and prismatic LFP (lithium-ion phosphate) cells in India. The company has announced a 16 GWh cell capacity and a 5 GWh pack facility in Telangana. It expects to reach 8-10 GWh cell capacity by FY27 and 16 GWh by FY31.

This follows similar moves by Exide Industries, which has a long-term technical agreement with China's SVOLT Energy, and Tata AutoComp, which also has a joint venture with China’s Gotion. While Exide has signed agreements to locally make LFP electric vehicle batteries for South Korean carmakers Hyundai and Kia in India, Tata AutoComp is already a supplier of batteries to Tata Motors, India's largest passenger electric vehicle maker. 

Mint had reported in May that the Sajjan Jindal-led JSW Group is finalizing a significant technology transfer partnership with a Chinese lithium-ion cell manufacturer. This deal aims to establish a 60,000-tonne lithium-ion refinery and a 50GWh cell factory in Paradip, Odisha.

Amara Raja has agreements with two and three-wheeler maker Piaggio for supplying LFP cells and battery packs, and with Ather Energy to supply both LFP and NMC (nickel manganese cobalt) battery packs to the two-wheeler startup. Amara Raja also has an agreement with Jiangsu Highstar Battery Manufacturing Co. for NMC technology, and is likely to announce pacts with passenger vehicle original equipment manufacturers (OEMs) in the coming months.

So why, despite its strained geopolitical relations with China, is India turning to its neighbour to advance its battery cell ambitions?

China controls lithium-ion technology, raw materials

Jayadev Galla, chairman and managing director of Amara Raja, told Mint in an interview that domestic battery players, being beginners in the technology, need to harness the benefits of China's scale.

“We chose Gotion as our partner because they are leaders in lithium iron phosphate (LFP) technology, which we believe is best suited for the Indian market", Galla said, adding, "They are vertically integrated, handling everything from mining to refining. They operate not only in China but also have a lithium mine in Argentina. Initially, we will rely on them to source all the critical raw materials since we are starting at a very small scale."

Amara Raja hopes to corner a 30% share of the lithium-ion battery market in India. “I think we'll start with a very high market share and probably settle at about 30%", Galla said.

He cautioned that India's cell manufacturing industry may take “decades", rather than “years" to reach the level of scale and technological advancement China has achieved, if India doesn't 'de-link' its geopolitics with what the industry needs to get cell manufacturing off the ground.

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“Geopolitical issues and risks are certainly there and cannot be ignored; we need to be ready to handle their fallout. However, considering China's dominant position in this segment, it would take us a lot of money and time to reach the same end position without their involvement. Without China, it might take us decades rather than a few years to achieve similar results. We must acknowledge that, despite geopolitical tensions, our economy is deeply linked with China. Despite government efforts, this dependence has only increased. If we overreact to these issues, it could harm us more than it would China," he told Mint.

The reality of India's lithium discovery

India’s recent discovery of lithium deposits in Jammu has been met with optimism, but years may pass before the EV ecosystem will likely be able to assess actual benefits from the find.

“We were excited when we heard about the lithium deposits in Jammu. If these reserves turn out to be viable, they could potentially provide a substantial advantage. However, the grade of the lithium and the cost of extraction remain uncertain", Galla said. “We don’t yet know if the deposits will be competitive compared to existing global sources. If extraction costs are high, the benefits might be limited. There’s a lot of uncertainty, and it might take a minimum of five years to assess the true value of these reserves."

Make in India, with a little help from China

Despite the reliance on Chinese technology and raw materials, Indian companies are taking the learning route via tech transfers to invest parallelly in their own research and development capabilities to reduce future dependency. Amara Raja, for instance, is establishing an R&D centre to foster local expertise and mitigate geopolitical risks. “Our agreements give us the flexibility to work with different partners and avoid equity relationships, which helps mitigate geopolitical risks", Galla said. That explains why most of the recent partnerships with Chinese cell makers, after Tata AutoComp, have avoided any equity joint ventures which involve a Chinese entity having to make investments in India, or vice versa.

India wants 30% of all car sales to be electric by 2030, for which the country will need to locally produce battery cells at large scale. Participants in the government's PLI scheme for battery cells are expected to start manufacturing operations over the next 2-3 years, but have been slow to commission new gigafactories.

"The average capex needed per GWh of cell manufacturing plant in India is already attractive relative to developed countries and some of the other emerging economies," said Kumar Rakesh, IT and auto analyst at BNP Paribas.

“We have seen that the choice of right cell manufacturing technology can help further reduce the capex requirement as it offers higher yield and higher energy density," he added.

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However, Indian battery cell makers will also rely on initial government support till they reach cost competitiveness with China.

“I believe both we and Exide have a significant edge over others. We are ahead of the competition in our journey towards cell manufacturing. For those who won round one of the PLI scheme, I don’t see much progress on the ground towards cell making", Galla said Mint.

Ola Electric and Reliance New Energy were among the players who were selected for the first round of the advanced chemistry cells PLI scheme by the ministry of heavy industries. Under the scheme, the applicants were required to ready 1 GWh of cell production capacity by 31 March, 2024.