India needs EV success even if it increases exposure to Chinese value chains
India’s policy focus on making the country a hub for EV-making will have a side effect. As electric vehicles (EVs) roll off assembly lines, our dependence on Chinese imports will rise, even though we’ve been trying to reduce it. That’s because China, with a head-start of a decade or so, is the global leader of clean-tech in general and this segment of the auto industry in particular.
A report by Global Trade Research Initiative (GTRI) highlights this trade-off. Our latest EV thrust, led by a policy carve-out that envisions a competitive EV industry behind low tariff barriers, is likely to result in greater shipments from China, which dominates the global value chain (GVC) of EV batteries, going all the way back to lithium, a key mineral. In the next few years, according to the report, “every third EV and many passenger and commercial vehicles on [Indian] roads could be those made by Chinese firms." This isn’t a scenario New Delhi will be comfortable with as ties with Beijing fray amid geopolitical tension, territorial disputes and economic competition.
We don’t have much choice, though. China embarked on an EV drive before others and is well ahead on cost compression. While India has a lot of catching up to do, the race has only just begun and so we can still hope to vie for global leadership.
Auto-making in India has always been done behind high tariffs, but with EVs, a new story could possibly be scripted. Currently, about 70% of the materials used to make EVs in India are imported from China and other countries, according to the GTRI report. The People’s Republic is home to an estimated three-fourths of the world’s battery capacity, an input that typically accounts for between a third and 40% of an EV’s cost.
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