Despite the surge in EV sales, cost remains the biggest hurdle to greater adoption; EV sales volumes accounted for just 7.66% of total vehicle sales in 2024
The Economic Survey 2025 highlighted concerns about India’s limitations in producing critical minerals, crucial for the production of EV batteries, and growing dependence on Chinese imports
With the government cognisant of this urgency, FM Nirmala Sitharaman announced a National Manufacturing Mission, saying it will boost the EV ecosystem
The electric mobility sector grabbed its fair share of the spotlight as Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on February 1 (Saturday).
In her eighth budget speech, the FM announced a National Manufacturing Mission for MSMEs and large enterprises in line with India’s vision to become a global manufacturing hub.
In the same breath, Sitharaman said the mission will strengthen the nation’s manufacturing capabilities in the cleantech space, in particular solar cells and the electric vehicle (EV) ecosystem.
High battery cost is the biggest reason behind EVs being more expensive than vehicles with internal combustion engines (ICE). As per estimates, the upfront cost of an EV is roughly 1.5-2X higher than a comparable internal combustion engine vehicle. Batteries account for around 30-40% of an electric vehicle’s bill of materials (BOM).
India faces limitations, however, in producing critical minerals such as cobalt, nickel, and lithium — crucial for the production of EV batteries. The Economic Survey 2024-25 highlighted that India sources 75% of lithium-ion batteries from China.
“The import intensity of E-Vehicle production – especially from countries with whom India has persistent and large trade deficits is very high. Indigenising the technology and raw materials for electric mobility is an urgent task,” said the survey.
The question marks raised over India’s reliance on EV imports from China gain more significance as the government pushes automakers to adopt mixed-powertrain technologies, including EVs and flex-fuel vehicles, to meet the ambitious goal of achieving net zero emissions by 2070.
With the Indian government cognisant of this imperative, the union finance minister proposed duty exemption for cobalt power, lithium-ion battery scrap, lead, zinc and 12 critical minerals. This is expected to give a boost to domestic manufacturing of EV batteries.
This comes at a time when Bhavish Aggarwal-led Ola Electric, which went public last August, is setting up India’s first gigafactory for lithium-ion battery manufacturing in Tamil Nadu. The company plans to integrate its cells into its EVs by the first quarter of the fiscal year 2025-26 (FY26).
India needs to take a two-pronged approach to ensure that the homegrown EV industry has the right foundational platform, said Pranav Pai, founding partner and chief investment officer at 3one4 Capital.
Pai called for continued support from the Centre to boost domestic manufacturing, including incentives for local production of EV components. This would help India reduce its dependence on imports, particularly from China. “We have not seen government support at the scale and timeline as it has been extended in the US and China, so the Indian government must prioritise this,” he added.
Stressing the need for urgent action on the ground, the Bengaluru-based investor said that the government should relax the gating of deployment of sops and incentives or risk losing global competitiveness in the EV sector.
During her budget speech, the FM also put forth the proposal to reduce tariffs on imports of open cells and other components and add 35 capital goods for EV batteries to the exemption list.
Pai is of the view that India should partner with countries such as Australia, Chile, and Argentina which currently control the global critical mineral supply chain, which could involve long-term supply agreements and joint ventures.
At the same time domestic exploration also needs a push. The central government should invest in geological surveys and mining infrastructure to identify and extract critical minerals within India. Incentivising materials recycling and urban mining could be one way to spur this, Pai added.
The Need For Clarity
As the government announces a national manufacturing mission to support cleantech manufacturing for solar cells and the EV ecosystem, there are several areas of clarity that need to be addressed, according to Samkit Shah, cofounder of Jitendra EV.
“Firstly, it’s important to understand if there are financial incentives available, such as tax rebates, subsidies, or grants, and whether specific incentives exist for green or sustainable manufacturing practices,” he told Inc42.
Shah added that clarity on incentives — whether they are limited to large-scale manufacturers or open to startups and MSMEs — is another gap. “The process for application submission is another concern – is there a centralised platform or portal for businesses to submit their applications?” he wondered.
The Jitendra EV founder also urged the government for specific key performance indicators for manufacturers from the point of view of production volume or job creation. “Manufacturers may also need to adhere to specific Standard Operating Procedures (SOPs) regarding quality standards, safety protocols, and environmental practices, and questions remain about whether there will be regular audits or monitoring to ensure compliance.”
These concerns from the EV industry are not unwarranted despite the acknowledgement that this will boost the industry at large. After all, the previous FAME subsidy schemes did have multiple challenges in implementation, which resulted in many companies facing questions from the central government. Some were even blacklisted from future schemes. It’s not clear if that applies to the potential PLIs in battery manufacturing.
Self-Reliance In EV Batteries
Coming back to the question of self-reliance, if India focuses on recycling technologies to recover critical minerals from spent EV batteries, it would also cut reliance on primary sources and create a circular economy for these minerals, Pai noted.
Over the past few years, government schemes such as faster adoption and manufacturing of electric vehicles (FAME) and production-linked incentive (PLI) have played a pivotal role in encouraging indigenous manufacturing of EVs and the development of the necessary charging infrastructure across the country.
To accelerate EV adoption in India, the Centre also rolled out the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive) with an outlay of INR 10,900 Cr last October.
Under this scheme, the government will offer sops for electric two-wheelers, electric three-wheelers, and e-buses among others.
The effect of such initiatives in catalysing the industry is backed by rising EV sales in the country. Total EV registrations in the country rose 30% year-on-year (YoY) to almost touch the 20 Lakh mark in 2024, with electric two-wheeler registrations zooming 33% YoY to 11.4 Lakh.
While sales of EVs have surged in India, cost remains a major hurdle to greater EV adoption. EV sales volumes accounted for just 7.66% of total vehicle sales in 2024, as per Vahan data as of February 1.
Further, the EV market is currently dominated by 2W vehicles, which account for 85-90% of EV sales. While EV penetration remains low in the 3W passenger vehicle segment, there is a lack of 4W passenger EVs whose prices far exceed CNG and ICE models.
Will a focus on manufacturing and removing restrictions in the procurement of raw materials change this ground reality?
India desperately needs to identify ways to improve its self-reliance in the EV battery space, and even if these are early days — and the policy around EV batteries and recycling is yet to crystallise — the Budget is throwing the challenge to the industry. The question now is will the EV ecosystem take up this challenge?
[Edited by Nikhil Subramaniam]
