Charging Ahead – Reforming the Electric Vehicle Ecosystem -

Siddhartha Ayyagari

The world is witnessing a major transition towards Electric Vehicles (EVs) with the aim of reducing transportation emissions and dependence on fossil fuels. To boost domestic manufacturing of EVs, the Government of India has launched schemes such as Production Linked Incentives (PLI), Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SPMEPCI) and Faster Adoption and Manufacturing of Electric Vehicles (FAME). The Ministry of Heavy Industries under SPMEPCI recently issued a notification to attract global electric vehicle manufacturers to position India as a manufacturing hub. As part of this, the import duty is reduced from 110 % to 15 %. Eligibility requires a minimum USD 500 million investment in domestic electric car manufacturing within three years, along with specified domestic value addition targets.

Schemes, such as the PLI, are aimed at building a robust ecosystem for the manufacturing of EVs in India and have been successful in other domains. For instance, the electronics sector under the PLI scheme has emerged as the third-largest export segment, a notable jump from its seventh position in 2020. Specifically, the smartphone manufacturing, driven by the Make in India initiative, has seen a dramatic transformation, with domestic production rising from a modest 26% in 2014-15 to a staggering 99.2% today.

However, India’s journey towards self-reliance in EVs is still a long way to go. The end-to-end battery manufacturing ecosystem is still in its evolutionary stage. The key challenges include inadequate availability of raw materials- especially the access to rare earth elements and limited technological expertise in terms of design, efficiency and fast charging solutions. Additionally, the substantial capital investment required for research and development (R&D) is a major obstacle, especially when compared to countries like China, Japan, the USA, Germany and South Korea. Being a relatively emerging sector, the availability of a skilled talent pool also presents a major barrier.

As of today, India sources 75% of its lithium-ion batteries from China. Lithium-ion batteries are currently the most widely produced and used globally, with China holding near global monopoly over their design, manufacturing and production. It accounts for more than 70 % of global lithium-ion battery manufacturing. Other battery technologies, such as sodium-ion, hydrogen fuel cells, and solid-state battery technologies, are still at an evolutionary stage. China is significantly ahead of other nations in sourcing raw materials, managing supply chains, advancing technology, and production capabilities. Its success as the global hub for renewable batteries can be credited to the government’s long-term planning, manufacturing and production subsidies, tax incentives, and favourable policy measures. This has resulted in the rise of several domestic EV brands and the creation of a complete global ecosystem. The country’s share in the global EV market has reached a staggering 76 %. The Lithium-ion battery manufacturing requires critical elements such as lithium, cobalt, nickel, and rare earth elements. In this case, as well, China dominates more than 50% of the global processing and production of these minerals. In the case of rare earth minerals, China accounts for more than 70% of global production. Conversely, EVs require a higher number of semiconductors compared to conventional vehicles. Again, China over the last two decades has established itself as the major hub for semiconductor production.

With the entire supply chain, technology and production domination, the world is already experiencing supply chain monopoly and export restrictions. In light of the growing vulnerabilities, the US and European Union markets have started imposing higher import tariffs in recent years to curb China’s hegemony. The latest restrictions by China on the export of rare earth metals have raised alarm bells within India and globally. The long-term disruptions affect not only the automobile industry, but also the manufacturers of defense, semiconductors, electronics, wind turbines, and medical equipment, adding strain to supply chains and raising costs.

It is estimated that India has 8 % of the global rare earth elements, ranking 5th globally. However, the production of these elements is negligible due to lack of advanced separation and refining technologies for raw materials, stringent environmental norms and regulatory challenges. To address these bottlenecks, the Government of India has launched the National Critical Mineral Mission in April 2025 to achieve self-sufficiency in critical minerals. Efforts are underway to reassess existing export agreements. Simultaneously, steps are being taken to enhance domestic processing and production of these elements. The role of Indian Rare Earths Limited (IREL), a government-owned subsidiary, has become highly pivotal due to its complete monopoly over the mining of these minerals. To cater for the domestic demand, collaboration with the private sector is being allowed for exploration through the amendment of the Mines and Minerals (Development and Regulation) Act, 2023. To bridge the technology gaps, partnerships with reliable and strategically aligned nations should be pursued to gain their technological expertise. 

With regard to statutory clearances, the entire turnaround time, right from bidding to operations in the mining sector, needs to be streamlined. For instance, in the case of iron ore, after the auction, the successful bidder must obtain clearances from various authorities such as the Environment, Forest, Mines and Geology Departments, along with local bodies, before commencing full mining operations. This entire process typically takes at least 3 years.

In order to succeed in the EV sector, India should draw inspiration from its achievements in the solar sector. During the first 8 months of FY 2024-25, India has recorded a 56% reduction in solar cell imports from China, down from 90% in FY 2023-24. Similarly, the import of solar modules has significantly dropped to 65%. This can be attributed to the government’s policy support, prioritisation of domestic manufacturing, and diversification of supply chains. This has also resulted in the emergence of several home-grown players.

If India sustains its efforts with similar enthusiasm, it can achieve Original Equipment Manufacturer (OEM) status for EVs in due course. OEMs are involved in the designing, manufacturing, and marketing of a product. This shall minimise the supply chain vulnerabilities and ensure self-sufficiency. The country has already witnessed the emergence of several two and four-wheeler EV brands, with high potential to supply global markets. One of the key steps towards achieving this goal is ensuring self-reliance in battery technologies. This is being addressed through the PLI scheme, with commercial production from shortlisted companies expected in the near future. To mitigate supply chain challenges, the Government is partnering with African nations for sourcing raw materials. In addition to the proven lithium-ion battery technology, encouraging research and development (R&D) in new battery types should be pursued to gain a competitive advantage in global markets.

The FAME II scheme has driven notable progress in the passenger bus, two and three-wheeler segments. However, incentives for four-wheel vehicles were directed mainly to public and commercial transportation only. This deterred widespread adoption among the private users owing to high capital costs. On the charging infrastructure front, less than 10 % of the scheme’s budget was allotted, resulting in slow expansion beyond urban centres. Further, stringent localisation norms and limited focus on R&D have become major obstacles. 

Despite considerable progress in the infrastructure sector over time, logistics cost in India remain high at 14 % of GDP, compared to 8-10 % of GDP in the US and Europe, and 9 % in China. Furthermore, acquiring land for project development continues to be a major challenge, leading to substantial delays and cost overruns. To address these challenges, State Governments are creating dedicated land banks and developing industrial corridors with essential infrastructure. 

Despite these challenges and various external headwinds, India’s GDP is expected to grow by more than 6%. India stands out as an attractive destination for countries seeking to diversify their supply chain networks. As the possibility of violating Intellectual Property Rights in India is minimal, coupled with new initiatives like SPMEPCI and PLI, there is a huge opportunity for attracting foreign investments, which are likely to bring technological capabilities and up-skilling of domestic talent. Furthermore, the Indian automotive sector is expected to grow to USD 300 billion by 2030 from the current USD 151 billion, making it 3rd  third-largest market in the world. This will make the Indian market more appealing to investors, making EVs more affordable for domestic consumers, while also catering to the growing global demand.

Siddhartha Ayyagari works in the area of Public Policy and Business Regulations. The views expressed here are personal.