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Small Industries Development Bank of India (SIDBI) recently announced a new scheme to boost the electric vehicle (EV) ecosystem in the country.
The pilot phase of the scheme focuses on increasing the uptake of electric two-wheelers, three-wheelers and four-wheelers through direct and indirect lending support to vehicle aggregators, fleet operators and leasing companies.
Under Mission 50K-EV4ECO, SIDBI will directly provide loans to eligible small and medium enterprises (SME) for the purchase of EVs and developing charging infrastructure, including battery swapping.
Financial institutions, in general, are wary of investing in SMEs in the EV sector. This is because the nascent sector is perceived to have high asset and operations risks.
Mission 50K-EV4ECO intends to ‘promote the entire EV value chain’, according to Sivasubramanian Ramann, chief managing director, SIDBI.
SIDBI’s scheme is a positive step to support the demand-side of EV adoption in India, especially in light of the Government of India’s FAME 2 scheme coming to an end by March 2024.
What is missing in SIDBI’s scheme are the crucial supply-side incentives to stimulate the ‘entire EV value chain’. The critical component of this value chain is the battery, which accounts for 25-35% of the EV cost.
Manufacturing of lithium-ion batteries comprises multiple steps, including electrode preparation, cell assembly, battery pack assembly and battery testing, which involve advanced machinery.
Currently, a substantial part of the battery manufacturing ecosystem is heavily skewed towards battery pack assembly that relies on imported lithium cells. This raises concerns of suitability of battery chemistry and design to the local environment, operational safety and vulnerability to external supply shocks.
To promote local manufacturing of cells, the central Production-Linked Incentive (PLI) Scheme for Advanced Cell Chemistry Battery Storage incentivises the establishment of ‘gigafactories’. In such factories, the entire battery manufacturing sub-processes are integrated in a single facility. The PLI scheme also has a criteria of a minimum of Rs 225 crore mandatory investment, which essentially favours large business houses.
An alternate strategy to develop domestic manufacturing competency can also be envisioned. Taking cue from the existing ICE (Internal Combustion Engine) vehicle industry in India in which there exists a flourishing automotive component supplier ecosystem, a similar ecosystem can be developed for EV supply chain. Each of the individual components and sub-process of the EV value chain can be carried out at the SME level and integrated downstream similar to a hub and spoke model.
Specifically, taking the case of an EV battery pack, SMEs can manufacture individual components of a cell like the current collector, electrolyte or separator, which will feed into a cell assembly unit that acts as an intermediary hub.
Further on, a batch of cells from a particular cell assembly unit can be assembled together by a battery pack manufacturer. The battery pack, along with the motor and associated power electronics components (also SME-driven), can be finally assembled into an EV.
Currently, SMEs have not entered the EV supplier ecosystem on a large scale due to constraints in raw material accessibility, high initial capital expenditure, scattered charging infrastructure and nascent EV demand levels.
Financing this downsizing strategy, however, can make it easier for smaller manufacturers to enter the market, rather than the existing strategy of having a purely gigafactory-dominated oligopoly.
This will ultimately enable a larger decentralised EV manufacturing-supplier ecosystem to be established in the country with both small and large players playing a role, which is a stepping stone towards the central government's ambitious vision of 30 per cent EV penetration by 2030.