Economic Impact of Customs Duty Cuts on Lithium and Cobalt: Accelerating India’s EV Ambitions

By Yogesh Bhatia, MD and CEO, of LML.

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Electric Vehicles (EVs) are on their way to change the face of transportation in the country, with their popularity and demand soaring higher each day. This surging demand for EVs has led to a corresponding rise in the demand for lithium-ion batteries, which are the backbone of these game-changing vehicles. Lithium-ion batteries are essential for storing the electrical energy needed to power an EV’s electric motor, providing the necessary range for a smooth and efficient driving experience. The production of these batteries relies on essential minerals such as lithium and cobalt, which are integral to the creation of lithium-ion cells. While lithium is used due to its high storage capacity and lightweight properties, cobalt plays a crucial role in stabilizing the battery and improving its overall performance. 

However, the limited availability of these critical battery raw materials domestically coupled with the high cost of importing them, has been a major hindrance to the local production of lithium-ion cells. Consequently, India has been heavily reliant on imports, with nearly 70% of India’s Li-ion cell requirements being met through imports from China and Hong Kong. Unfortunately, the high cost of importing cells has resulted in costly EV batteries in the market. Given that battery costs make up around 40% of the total EV cost, this has further resulted in elevated prices of EVs in India. Bearing the impact of all this are the Indian consumers who ultimately end up paying more for EVs. High EV costs have also discouraged many consumers from transitioning to EVs, thus proving to be a major barrier in the growth of the industry. 

However, the Union Budget 2024-25, which was announced recently, brought a wave of joy and optimism in the industry. A key highlight of the Budget is the complete waiver of customs duties on 25 critical earth minerals, including lithium and cobalt. This strategic decision by the Indian government is expected to boost the local manufacturing of lithium-ion cells, which will in turn drive the production of high-performance lithium-ion batteries in the country. The move has been greatly applauded by the industry players as it aligns with the country’s ‘Make In India’ campaign and aims to promote self-reliance in the EV sector. 

This shift towards domestic manufacturing of lithium-ion cells will enable companies to save on import costs, leading to cost savings that can eventually be passed on to the consumers. Essentially, it means that cheaper import cost of lithium and cobalt would bring down the costs of EV batteries in India, which would further reduce the prices of these vehicles in the country. This development would address the longstanding concern of high upfront costs associated with EVs and is poised to make these vehicles a more viable option for Indian consumers in the near future. 

Moreover, lower cost of EVs is expected to drive higher adoption rate of these eco-friendly vehicles in the country. Rightly, this would set the path for meeting India’s ambitious target of electrifying 30% of the vehicle fleet by 2030. A greater number of EVs on the Indian roads would result in decreased greenhouse emissions, resulting in cleaner air and a healthier environment for all. Thus, looking at the larger picture, the key announcement in the Budget not only supports the growth of the EV industry, but also underscores India’s commitment to sustainable mobility solutions. 

Manufacturing lithium-ion batteries cells in India would also improve the supply chain resilience of the EV industry. Localized production would make the country self-sufficient, eliminating the need for foreign supplies. This would in turn make the Indian EV market more stable and less vulnerable to external shocks. Furthermore, the move is also likely to spur innovation and technology development in the EV industry. Indian EV players can take this opportunity to collaborate with leading research institutes to develop new and improved battery technologies that would ensure enhanced safety, efficiency and performance. 

Having said the above, the Indian government has consistently shown its commitment to boosting cell manufacturing and battery production within the country through several initiatives and focused schemes. Numerous companies had already begun setting up lithium-ion battery manufacturing units in India, while many others have announced investment plans towards the same. This recent announcement is a positive development for these industry players, as it would enable them to further enhance their endeavours in this area in a cost-effective manner.  

Thus, customs duty exemption on lithium and cobalt is a critical enabler for the EV industry. Besides supporting the growth of the EV market, this move also has the potential to boost the local economy by creating job opportunities and attracting investments in the manufacturing sector. Moving ahead, as the demand for EVs continues to go up, the demand for lithium-ion batteries is also expected to skyrocket. As per a report, India’s demand for Li-ion batteries is set to reach 20 GWh by 2026 and 70 GWh by 2030. Industry experts are optimistic that this increased demand would be able to be fulfilled internally. That, indeed, would be a significant milestone in the EV industry.