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How Rs 34 trillion lithium find could shape India’s EV story

The Geological Survey of India recently announced the discovery of 5.9 million tons of lithium in Jammu & Kashmir. At current lithium prices, it is valued at a whopping INR34 trillion. This article aims to analyse the potential impact of this discovery on India, the steps required before its final production, and evaluate the performance of electric vehicles in 2022, as lithium is a critical component in their batteries.

For starters, a “resource” refers to an estimated amount of a geological commodity in discovered and undiscovered deposits, while “reserves” are a subset of resources that are economically viable to extract.

India’s mining secretary stated that the lithium found in Jammu & Kashmir is of high quality, with a grade of 500 ppm, compared to the normal grade of 200 ppm. The assessment of the mineral concession is analysed using the United Nations Framework Classification (UNFC), which is a three-dimensional system considering geological, feasibility, and economic factors. The Geological axis has four stages (1) reconnaissance (G4), (2) prospecting (G3), (3) general exploration (G2) and (4) detailed exploration (G1).

The recent lithium discovery is classified as G3. Further exploration, a detailed mapping including geochemical and geophysical surveys and drilling, is required to arrive at a G1 estimate. Simultaneously, an economic analysis will also be conducted to determine economically viable extractable mineral content.

In India, mineral extraction is regulated by the Mines and Minerals (Development and Regulation) Act, 1957. Lithium-bearing minerals are classified as atomic minerals (part B of the First Schedule) and regulated by the Atomic Mineral Concession Rules, 2016. The permitting process for extraction includes a Reconnaissance permit, Prospecting License, and eventually, a Mining Lease.

It may take years for actual output from the G3 find in India. Globally, India will rank 6th with 5.9 million metric tons (MMT) of resources, behind Bolivia (21 MMT), Argentina (20 MMT), Chile (11 MMT), Australia (8 MMT), and China (7 MMT). Worldwide resources are estimated at 98 MMT, with actual reserves at 26 MMT. The majority of the 130,000 tons of lithium produced in 2022 came from only 14 mines. Despite vast resources, Bolivia and Argentina have limited production.

As India determines the best method for production, the global electric vehicle (EV) market is rapidly growing. In CY2022, global EV sales increased 60% to 10.4 million units, representing 13% of total vehicles sold (80 million). China accounted for 60% (6.2 million) of total EV sales, which doubled in 2022. North American EV sales were 1.1 million, a 50% increase, while Europe sold 2.6 million EVs, up 11% in 2022.

In CY2022, BYD (with 18% market share) surpassed Tesla (12.6%) as the leading EV brand by sales. Shanghai Wuling was third with a 6% market share. Major traditional automakers, such as BMW, Volkswagen, Mercedes, Volvo, Audi, and Hyundai, held less than 3% each.

If government goals are met, by 2030, 100% of new cars sold in the UK, Sweden, the Netherlands, Norway, and Germany, 64% in France, 50% in the US, and over 40% in Korea and Oceania will be EVs. This implies that annual EV sales will increase fourfold from current levels.

EVs are powered by lithium batteries (LiBs), with demand at 473 GWh in 2022. In Dec-22, of the 60 GWh battery sales, 31 GWh was sold in China, 20 GWh in Europe, and 9 GWh in the US. CATL is the largest supplier with a 35% market share, followed by LG with 15% and BYD with 14%.

LiB demand is expected to increase to over 4 TWh by 2030. Battery manufacturers aim to increase capacity to over 6 TWh, with CATL planning to raise capacity from 177 GWh to 1.2 TWh, LG from 150 GWh to 1 TWh, and Tesla from zero to near 1 TWh.

The batteries used in EVs primarily use two chemistries: lithium iron phosphate (LFP) and lithium nickel manganese cobalt oxide (NMC). LFP batteries are durable and heat-resistant but occupy more space, while NMC batteries are more compact but less heat-resistant. LFP batteries are 30% cheaper. However, a series of patents in China has limited their worldwide shipment to only 25%, despite accounting for 50% of shipments in China. These patents expired in CY2022, which may lead to significant changes going forward.

Coming home to India, we face three significant challenges in the EV ecosystem: insufficient raw material availability, unreliable power networks, and a delayed entry into the technology sector. The recent discovery of lithium resources will likely allay the first challenge in due course.

Today, India imports LiON cells (Ola, Ather and TVS from LG; Hero and Ampere from China; and Bajaj and Tata Motors from Panasonic). Globally, battery manufacturers do cell assembly. However, as India imports them, it is done in-house (by Ather and Ola), or by a third party (for Bajaj, TVS and Tata). The smart battery management systems are also imported and so are the motor and control units (TVS and Bajaj buy from Bosch, which imports these; Ather builds them).

The Indian government is now taking steps to promote EV development by offering a production-linked incentive scheme (in advanced cell chemistry) and subsidizing the end product under the FAME India Phase-II scheme. However, the cost of EVs in India is still higher compared to traditional vehicles.

The big question then is, how does one play this theme? The answer is: nobody knows.

In India, most of the players in the EV ecosystem, including cell and pack, power train and power electronics, are unlisted. The listed companies, such as Bosch or ABB, have a limited contribution from EVs to their overall revenue, and companies like Hero or Bajaj, or suppliers like Amara Raja , have more to risk from their existing businesses than to gain from a potential EV market. There is also a concern among investors that some companies may invest heavily in EVs but not see success.

As a result, investors have adopted a “spray and pray” approach by investing in a broad range of companies across the industry, including OEMs (like Tata Motors or TVS), auto ancillaries (like Greaves Cotton, Alicon Castalloy or Minda), and software developers (like Tata Elexsi or KPIT). This has resulted in highly elevated valuations for companies with a higher probability of success.

The widespread adoption of EVs will result in numerous unsuccessful players, given the scale of disruption ($3.5 trillion in global automotive revenues) and the importance of the product (vehicles, not consumer electronics). The electrification of vehicles is a certainty (given that billions of dollars are already invested), but its specifics are uncertain. India has the potential to become a formidable player in the EV ecosystem if it can quickly convert its recent lithium find into production. The next few years will likely be very interesting.

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