What is the economics behind e-vehicle batteries?

Headline : What is the economics behind e-vehicle batteries?

Details :

In News

  • In May 2019 NITI Aayog had proposed to ban the sale of all internal combustion engine (ICE) powered 3-wheelers from 2023 and 2-wheelers below 150cc from March 2025, and called for them to be converted to electric vehicles (eVs).
  • To boost eVs, the Union Budget presented in July had also announced tax incentives for early adopters of eVs.
  • However, the automobile industry had objected to the some of the eV related proposals, especially the ban on ICE vehicles to push eVs, saying eVs are still not financially viable.

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Understanding the viability of Electric vehicles

Fuel in EVs:

  • In conventional Internal Combustion Engines, petrol or diesel is used as a fuel in the engine.
  • However, in EVs, batteries are not the fuel, instead electrons supplied by the battery fuel the vehicle.
  • The battery is a device that stores electrons/energy which is sourced from electricity.

Cost Structure of EVs:

  • Low cost of the drivetrain:
    • The cost 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 percent lower when compared to ICE vehicles.
    • This low cost of the drivetrain is primarily due to less parts in the electric drivetrain.
  • High cost of batteries:
    • However, the battery pack takes up nearly half the cost of an electric vehicle. For any meaningful reduction in the cost of EVs, the cost of battery packs needs to reduce significantly.

Batteries prices falling:

  • The price of Li-ion battery packs has been falling consistently over the past few years.
  • This decrease is in part due to technological improvements, economies of scale and increased demand for lithium-ion batteries.
  • Strong competition between major manufacturers has also been instrumental in bringing down prices.
  • Given that raw materials account for 60% of the cost of the battery pack, the room for further cost reduction is limited.

Indian scenario

Two wheelers to lead the way:

  • According to NITI Aayog, 79% of vehicles on Indian roads are two-wheelers. Further, three-wheelers and cars that cost less than Rs 10 lakh account for 4% and 12% of the vehicle population, respectively.
  • In India, EV adoption will be driven by two-wheelers rather than cars because India’s mobility market is driven more by two wheelers.
  • Two-wheelers will also need smaller batteries when compared to cars and hence the overall affordable cost.

Battery manufacturing units expected to grow:

  • At present, cells are imported and assembled into batteries, as setting up a battery manufacturing unit requires high capital expenditure,
  • However, battery manufacturing in India is expected to grow as electric vehicles grow.

Environment friendliness of EVs also needs work

  • 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.
  • This means that even the Li-ion batteries are predominantly using the conventional polluting sources to power the technology.
  • 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.

Section : Environment & Ecology

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