China makes a move on lithium; will Indian EV makers suffer?

Subscribe to enjoy similar stories. KOCHI : A quiet policy shift in Beijing is threatening to push up electric vehicle (EV) prices in India, just as the EV industry's tax edge over combustion engines begins to fade. China has decided to slash an export tax rebate on lithium-ion batteries from 9% to 6% from 1 April and phase it out in a year.

The 8 January decision bodes ill for Indian EV makers heavily reliant on Chinese battery makers such as BYD and CATL, and comes at a time when lithium prices have shot up over the past year. Batteries account for over a third of an EV's total cost, and costlier prices spell a direct blow to Indian EV makers, unless they pass on the increase to customers. EV makers dependent on short-term battery purchases are expected to bear the brunt of the decision.

“We are anticipating this issue to fully start reflecting in the market in the next few weeks. There will be a rush to stock up on inventory before the rebates go down," an executive handling battery supply for a two-wheeler manufacturer said. Any increase in battery prices due to the withdrawal of rebates could force major EV scooter and car makers in India to raise vehicle prices, if they choose to pass on the impact.

This comes at a sensitive moment for the sector: the tax differential between EVs and internal combustion engine (ICE) vehicles has already narrowed after the reduction in GST on ICE vehicles from 28% to 18% in some categories. EVs, which are generally more expensive than ICE scooters and cars, are taxed at 5% to aid adoption. According to BloombergNEF, average battery prices in China are around $84/kWh, going as low as $36/kWh.