It is too risky and expensive for India to be dependent on imports across the energy transition board, particularly EVs. At higher ends of the value chain, from battery cells onwards, there is a need to invest much more.

The start of COP27 in Egypt has renewed the world’s focus on climate change. Electric vehicles (EVs) are key in the global quest to decarbonise. In India, which also faces serious air pollution issues, the transition to EVs is critical. However, there is a China-size risk in the supply chain for electric vehicles. The recent sabre-rattling across the Taiwan Straits ought to be a warning for the world. Given India’s troubled relationship with China, the risk may be even more acute.

According to a recent report by the International Energy Association, every part of the EV supply chain is highly concentrated, mostly in China. The first stage of the supply chain is the key minerals required for batteries, namely lithium, nickel, cobalt and graphite. In graphite, China has an 80 per cent share of global mining output. In cobalt, the politically highly unstable Democratic Republic of Congo mines two-thirds of the global supply and Chinese companies control a big share of that country’s mining. Lithium and nickel are not concentrated in China but are concentrated elsewhere: Australia mines over 50 per cent of the world’s lithium and Indonesia mines 35 per cent of global nickel. Overall, this is a far greater concentration than in oil and gas. The next stage of the supply chain is the processing of ore/mineral concentrate into metal. China dominates across the board. Globally, over 60 per cent of lithium processing, over 70 per cent of cobalt processing, 80 per cent of graphite processing and about 40 per cent of nickel processing takes place in China.

The next stage is cell components. China produces two-thirds of global anodes and three-fourths of cathodes. The only other producing countries of note are South Korea and Japan. After that come battery cells, where China has a 70 per cent share. Finally, in EVs themselves, China has a share of around 50 per cent in global production. Europe is a distant second with 25 per cent. Surprisingly, the US is a small player in the EV supply chain, producing only 10 per cent of vehicles and containing just 7 per cent of battery production capacity. India does not feature as a player of note.

The fact is that China is now the biggest spender on climate/energy transition. According to a report by Bloomberg’s New Energy Fund (NEF), in 2021, out of a total global spend of $750 billion in climate-related investments (90 per cent of which went into renewable energy and electric transport), China alone spent $266 billion. The US was a distant second with $114 billion. The major countries of Europe combined would equal the US. India was in 7th place – not a bad rank to occupy – with $14 billion invested. However, while almost 40 per cent of Chinese and US spending was on EVs, more than 95 per cent of India’s spending is on renewable energy. Interestingly, in Europe, about 75-80 per cent of the spending is on EVs, which is why it leads the US in this sector. In India, despite intent, EVs have not received sufficient investment.

As India makes good strides in its energy transition it cannot afford to depend on China and select countries. A two-pronged strategy is needed. First, on the minerals and materials. India has been slow at acquiring overseas mines of these critical minerals. A recently formed government venture, KABIL, which is a JV between three minerals and metals PSUs, is tasked with the job of identifying and acquiring overseas mines. However, given the serious constraints in which PSUs operate, especially when compared with their Chinese counterparts, the chances of success are small. An alternate option is to liberalise exploration policies domestically, benchmark them with global best practices and invite global investors to find and mine in India. Simultaneously, it is important to stitch up supply alliances with countries ex-China, as has been done with Australia. At higher ends of the value chain, from battery cells onwards, there is a need to invest much more, not just in PLI, but given the nascent stage of the industry, in R&D. Here, a public-private partnership is vital. The vibrant startup ecosystem must be leveraged because it is more likely to be innovative than legacy firms. At any rate, it is too risky and expensive for India to be dependent on imports across the energy transition board, particularly EVs. We know that from our experience in oil.