Electric vehicles have reported a CAGR of 205% in two-wheelers and 149% in four-wheelers in domestic sales volumes during FY20-FY22 on the back of low base effort and increasing demand and are expected to grow further at a rate of 75% over the next three years. The growth is likely to be highest in the 2W segment due to relatively lower ticket sizes and the fact that prices of electric 2W and ICE-based 2W have started to converge.
The steady decline in prices of electric 2Ws has been on account of a reduction in the cost of manufacturing Lithium-Ion batteries. Calendar years 2022 and 2023 were expected to be watershed years by when the battery manufacturing costs would decline to around USD100/kwh, which would then make EV vehicles comparable in price with ICE vehicles. Demand for EVs across various categories was therefore expected to rise steeply from 2023 onward. However, as per research conducted by Bloomberg NEF, the volume weighted per kwh production cost in
CY2022 is likely to rise marginally to around USD135 after displaying a sharp reduction in the past decade from over USD1000 to USD132 in 2021. Production costs for Lithium-Ion batteries are not likely to reduce from current levels for the next three years, thereby dampening demand for EVs to some extent.
Lithium, Cobalt and Nickel are the three key raw materials that are required for the manufacture of cathodes. The cost of manufacturing cathode contributes to a little over 50% of the overall battery manufacturing cost. The sudden increase in demand for these metals in the past five years has led to a demand-supply mismatch with mining capacity having to ramp up significantly to match demand. The largest suppliers of Lithium in the world are Australia, Chile and China with Chile having the largest reserves. In the case of Cobalt, the top three producers are the Democratic Republic of Congo (DRC), Russia and Australia, while for Nickel, the top producers are Indonesia, the Philippines and Russia. Volatility in Cobalt and Nickel prices in recent months has been attributed to the ongoing Russia Ukraine war. Mining of Lithium in Chile and Cobalt in DRC has come under criticism due to the adverse environmental impact of the same. Based on market data, CareEdge believes that increasing mining capacity for Lithium, Cobalt and Nickel in the mentioned regions would take at least three years and during the interim, battery prices would remain firm at around present levels.
The large-scale transition to EVs, which was earlier expected to happen post-2023, is likely to be delayed by at least three years, with two-wheeler EVs continuing to account for over 90% of demand in the interim. The switchover to EV in the car segment will continue to be hampered by relatively much higher car prices (as against comparable prices of EV and ICE vehicles in the two-wheeler segment), as well as the lack of charging infrastructure which is yet to be ramped up on a pan-India basis.