India Considers Extending 5% Duty on EV Battery Cells as Local Manufacturing Stalls

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AuthorIshaan Verma|Published at:
India Considers Extending 5% Duty on EV Battery Cells as Local Manufacturing Stalls
Overview

The Indian government is reviewing a proposal to extend the 5% concessional basic customs duty on lithium-ion cells for EV batteries for two more years. This is a response to the struggles of domestic manufacturing and a surge in imports, which reached $3 billion in FY25. The extension aims to keep EV prices affordable and support industry growth until local production scales up.

Government Mulls Extending Concessional Duty on EV Battery Cells

The Indian government is actively considering extending the 5% concessional basic customs duty (BCD) on lithium-ion cells, a crucial component for electric vehicle (EV) battery packs. This potential move, slated for discussion in the upcoming Union budget, comes as domestic manufacturing efforts have failed to gain significant momentum.

The proposal was put forth by the country's automobile industry during recent consultations with the ministry of finance. Industry stakeholders are keen to maintain current import duties to manage costs and support EV adoption.

Domestic Manufacturing Challenges

Lithium-ion cells represent a substantial part of an EV's cost, often accounting for up to half of the vehicle's price. India's reliance on imported cells has seen a considerable rise, with imports valued at $3 billion in FY25, up from $1.8 billion in FY22, according to commerce ministry data. Current domestic capabilities are largely limited to assembling imported batteries.

Demand for these cells is projected to grow substantially, with estimates suggesting a quadrupling from the current 15 gigawatt-hours (GWh) to 60-65 GWh by FY30. The government's ₹18,100 crore Production-Linked Incentive (PLI) scheme for Advanced Chemistry Cells (ACC), launched in 2021, has yet to see any disbursals, highlighting the challenges in establishing robust local production.

Support for EV Adoption

An extension of the concessional duty is seen as vital for sustaining EV adoption rates. Debmalya Sen, president of the India Energy Storage Alliance (IESA), emphasized that local battery manufacturing facilities are expected to reach commercial scale only towards the end of this decade. He noted that an increase in duty would negatively impact the battery assembling industry.

Financial and Market Implications

Alekhya Datta, director at The Energy and Resources Institute (TERI), believes extending the 5% BCD would help contain near-term EV prices. This is particularly important as batteries constitute 40-50% of an EV's cost, and the 'greenium' (premium for greener vehicles) remains high, especially for commercial vehicles. While this concession supports short-term affordability and uptake, it may require safeguards to prevent prolonged import dependence.

Future Outlook and Global Trends

India's EV market is anticipated to double in value to $110 billion by 2029. Globally, battery demand has surged, surpassing 1 TWh in 2024, with significant planned capacity expansions. Despite falling raw material prices, such as lithium dropping over 85% from its 2022 peak, establishing domestic cell manufacturing capacity exceeding 150 GWh by 2030, with investments over ₹75,000 crore, faces risks like time overruns, geopolitical shocks, and forex fluctuations.

Impact
This news suggests a continued focus on making EVs more affordable in the short term by keeping import duties low on essential battery components. It indicates that the government is prioritizing EV adoption over immediate domestic manufacturing ramp-up for cells. This could positively influence companies involved in EV assembly and battery pack solutions that rely on imported cells, while potentially signaling a slower-than-anticipated growth for domestic cell manufacturing infrastructure in the immediate future. Impact rating: 6/10

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