India and China started the disengagement process near the border laying a way to healthier relations, raising the question of whether India would permit Chinese investment through an automatic route or not. Earlier economic survey 2023-24 has emphasised inviting investment from China. Even, when tensions were high between both countries, China was the biggest trade partner of India, with USD 118.4 billion of trade value in 2023-24.
Although the decision has not yet been made, and with the finance minister's remarks that India would not allow blind foreign direct investment (FDI), it does not seem to happen shortly. Still, the hypothetical scenario raises a question about the impact it may create on Indian EV startups and ecosystems if it is allowed. The question gets deeper when the reactions of the European Union are assessed, which is raising import duty on Chinese electric vehicle (EV) companies to safeguard their own.
China’s Dominance
As per a report by the International Energy Agency, more than half of the electric cars on roads worldwide are found in China. In 2022, China accounted for 35 per cent of global EV exports, with BYD outselling Elon Musk’s Tesla in the quarter (Q) four of 2023. China’s new EV sales increased by 82 per cent in 2022, accounting for nearly 60 per cent of global EV purchases. It has also built a vast network of chargers. According to the National Energy Administration, China had 10.2 million EV chargers, as of June 2024.
Contemporary Amperex Technology Company (CATL), an electric battery company, produces about 40 per cent of the world’s EV batteries. It developed a battery with a range of over 1,000 kilometres. Recently CATL started the Freevoy Super Hybrid Battery, which possesses a pure electric range of over 400 kilometres and 4C superfast charging, setting a new standard for high-capacity extended-range electric vehicles (EREV) and plug-in hybrid electric vehicles (PHEV) batteries.
In January, this year, Elon Musk raised his concern over Chinese EV dominance and Said, “The Chinese car companies are the most competitive in the world. So, they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. If there are no trade barriers established, they will pretty much demolish most other companies in the world.”
China In Indian Market
Chinese EV giant BYD has entered the Indian market and aims to capture 90 per cent. In November 2023, SAIC Motor formed a joint venture with JSW Group to boost MG Motor’s growth in India. Currently, India depends on imports for 70 per cent of its lithium-ion battery demand, primarily from China and Hong Kong. In 2023, India's battery import bill reached USD 2.1 billion, with over 85 per cent coming from China.
A Global Trade Research Initiative (GTRI) report warned that in the coming years, one in three electric vehicles in India could be manufactured by Chinese companies, either independently or through joint ventures with Indian firms.
As global economic growth continues to fluctuate due to several factors, especially geopolitical crisis, the international EV market is undergoing a seismic shift, driven by the United States (US), European Union (EU) and Canada imposing high tariffs and restrictions on imports of EVs and parts from China.
India, however, is at a crossroads. Unlike other countries, it faces unique challenges in adopting EVs on a large scale. Instead of rushing into the fray with heavy incentives or falling into dependence on Chinese imports, India has the opportunity to let its EV sector evolve naturally, said GTRI in a report.
Talking about India's unique challenges in adopting EVs at large scale, the report stated that with over 80 per cent of its electricity generated from fossil fuels like coal, the environmental benefits of EVs could be diminished, as charging EVs using this energy mix may not be much greener than using traditional internal combustion engine vehicles.
“Frequent power cuts could also lead to battery charging using diesel generators, further reducing the environmental advantages. Without a shift to cleaner energy sources, the overall impact of EV adoption in India may fall short of expectations,” it added.
Additionally, EV production, particularly battery manufacturing, has a high carbon footprint, starting from the mining stages. Also, the scarcity of essential raw materials for batteries could lead to supply constraints and higher costs, and their extraction often involves environmentally harmful practices and ethical concerns, like child labour in cobalt mining.
More Challenges Ahead?
India is running short on one charging station to EV ratio. With 28.17 lakh EVs and only 15,493 charging stations, the current ratio of one station for every 182 EVs falls short of the ideal 6 to 20. This gap negatively impacts investment and limits adoption, especially in rural areas.
These challenges also include the higher costs of lithium-ion battery imports, environmental concerns for existing resource extraction, such as extraction of lithium in Jammu and Kashmir, and India’s limited recycling ability. In addition to that, India lacks strong research & development facilities for EV technologies, that may focus on improving battery performance and creating local components with self-reliant fast-charging solutions.
The high cost of EVs and low awareness about the benefits of EVs among consumers further deter the adoption, while poor customers' grievance redressal mechanism worsens the situation. The recent fallout of Ola Scooters is a prime example.
China’s Rising Dominance And Impact On India
In the past years, Chinese EV giants like BYD have expanded their footprint into markets across Southeast Asia, Latin America, and Africa, despite facing tariff barriers of up to 100 per cent in Canada and the US.
European countries might be a case study to assess the threat that comes with China. As per a commission made by of European Union registration of China-built EVs rose from 3.5 per cent of the EU market in 2020 to 27.2 per cent in the second quarter of 2024 and Chinese brands from 1.9 per cent to 14.1 per cent.
However Chinese EV makers were initially hesitant to engage with India's new EV policy, which demands long-term commitments, due to tougher India-China relations. But, with recent shifts in the relations, they may now consider the Indian market’s option, especially as they are facing high tariffs in Europe and North America. Media reports suggest that even Indian companies may think about joint ventures.
Recently JSW MG Motor India ( a joint venture ) has accelerated 7 startups focused on AI in Electric Mobility under the MG Developer Program and Grant Season 5.0. The startups will be leveraged to develop pilot programs and ongoing projects with MG and its ecosystem partners in the coming months.
The selected seven startups are- Anuvega Powertronics, Aselector Technologies, Emerging Technologies, Gudlyf Mobility, Power Jet (EV Urjaa), Ravity, and Vocbot AI. The company has associated with Startup India and Manthan (Office of the Principal Scientific Adviser to the Government of India) and a consortium, comprising AWS, Exicom, Lohum, and DRIIV to provide crucial support.
This signifies a positive impact on Chinese entrance. But it is quite contrary to the recent remark made by the Chinese commerce ministry which directed its carmakers to keep advanced EV technology within the country, even as they build factories abroad to avoid tariffs.
Last year, BYD informed its joint venture partner, Megha Engineering and Infrastructures, that it would stop its plans for a USD 1 billion investment to build electric cars due to government scrutiny of its proposal, as reported by Reuters. Similarly, a year earlier, another Chinese EV maker, Great Wall Motor, abandoned its USD 1 billion investment plan to enter the Indian market after waiting two and a half years for government approval. However, this indicates the aspirations of Chinese companies towards the Indian market.
In a push to make in India, the government is supporting the EV ecosystem to boost and be self-reliant, a shark-like China will not leave a stone unturned to capture the market if allowed freely. High subsidised, low cost and raw material-rich Chinese giant may offer way cheaper than Indian startups, which have its own challenges.
