Against the backdrop of the $3.5 billion Production-Linked Incentive (PLI) scheme launched by the Government of India, sales of Electric Vehicles (EVs) are expected to grow at a CAGR of 35% by 2032. It is crucial to take into account the fact that 86% of EV sales in India were under the price bracket of $20,000, and pricing the drivetrains [the transmission system that deliver mechanical power to the prime mover of the vehicle] at this price has proved fruitful for automakers to target customers; for daily commuters and among the taxi companies, the most prominent of which is Blue Smart; whose fleet is entirely operated on electric vehicles.

Driving forces behind India’s EV revolution
The increasing surge in domestic demand funneled through the low-cost pricing of the drivetrains has sparked a discussion between automakers and policymakers to manufacture locally. Data from Bloomberg reports that automakers have pledged close to $5.4 billion in lieu of the PLI scheme to expand their manufacturing facilities in India. The outpouring in commitments to establish local battery plants has gained momentum, buoyed significantly by government subsidies. Key players such as Tata Group, Amara Raja, Exide Industries, and Ola Electric, all prominent within the local sphere, have collectively declared plans to inaugurate 12.6 gigawatt-hours of cell manufacturing capacity.

The surge in the EV market in India is due to a combination of factors, among the government's various subsidies and tax schemes are the most important. The FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles), launched in 2019, allocated $1.2 billion to subsidise various EV segments. The 2024 Union Budget proposed extending this subsidy's duration in a push for green transportation. The budget also discussed the possible reduction in the Goods and Services Tax (GST) on lithium-ion batteries to 5% to facilitate the expansion of large-scale energy storage.

Strategic partnerships and domestic resource mobilisation
To understand the magnitude of EV adoption in India, analysing India’s lithium supply strategy is crucial. The majority of India’s requirements is met through imports primarily from China. India is also in the final stages of entering into a partnership with Argentina to import lithium; this deal however is a long way from being finalised and would take over a year to materialise.

Over the next decade (till FY33), India anticipates a surge in demand for electric vehicles (EVs), resulting in a projected escalation of 250 GWh in the demand for lithium-ion batteries. A report by Axis Capital suggests that with an average utilisation rate of 75%, this spike will necessitate a capacity addition of approximately 330 GWh by FY33.

Currently, India has identified reserves in a lithium block, totaling 5.9 million tonnes, located in the Reasi area of Jammu and Kashmir. Additionally, the country is awaiting the commercial availability of lithium in another block named Katghora in Chhattisgarh and subject to auctions commencing on November 29, 2024. New deposits have also been in Rajasthan and Uttarakhand. These large deposits of lithium position India geopolitically to continue the charge toward widescale adoption. The government is planning to ban the export of lithium and is in talks with the United States to enter into scientific partnerships.

Sustainability challenges in lithium production and recycling
The cost of lithium and the increasing annual production of EVsdevour the current global reserves of the metal. The production of lithium batteries in large numbers would rapidly deplete current reserves and increase prices make battery production more expensive in the future. The EV batteries use cobalt and nickel which cost $500 per battery, and rising EVs demand will increase the prices considerably. The estimated global demand for batteries at 20 million units in 2028 can lead to deplete the cobalt reserves in next 60 years. However, if lithium mining can be conducted smoothly and lithium-ion batteries are properly recycled, current lithium reserves can support a large global fleet of eclectic vehicles in the foreseeable future. The stress lies in proper recycling techniques used on lithium batteries.

Lithium, if improperly extracted or disposed, can have devastating effects on local ecosystems. In South America, the predominant issue revolves around water scarcity. Spanning parts of Argentina, Bolivia, and Chile, the continent’s ‘Lithium Triangle’ harbours over 50 percent of the global supply of this metal beneath its surreal salt flats. Additionally, it stands as one of the driest regions on the planet. Lithium extraction is a simple process but it consumes a large amount of water, approximately half a million gallons per tonne of lithium. Due to mining activities in Chile’s Salar de Atacama region, around 65 percent of the region’s water is used on it.

This same concern is echoed by locals of Salal village of Jammu and Kashmir, India, where large lithium deposits were recently discovered. Close to 350 families would have to be relocated and lithium mining would distress the land which already suffers from acute water scarcity. Lithium extraction is extremely invasive and it destroys the local water table. Improper recycling of lithium-ion batteries can lead to severe fire risks and environmental pollution. Once the lithium cathode degrades, it cannot be reused and automakers employ secretive tactics on the mineral composition of their batteries, making it more difficult to properly recycle. Even though new techniques of biochemical recycling are being developed, Indian recycling plants do not have the capital to employ these alternative technologies.

The lack of availability of battery scrap or black mass, an intermediate product in the recycling of these batteries, prevents recyclers from running the plants at full capacity. Recyclers end up importing black mass which needs to be transported in special containers which makes the cost of freight extremely expensive. Most countries that export black mass are restraining exports with Europe banning the export of battery scrap and black mass from 2025. India’s recycling infrastructure is lackluster with only seven players who can recycle the batteries and extract metals that can be reused.

Anirudh Kudavelly is a student, and Dr. Barun Kumar Thakur is Associate Professor, at Department of Economics at FLAME University, Pune. Views expressed are personal.