“EV Battery Prices Will Drop By 80% In Next Five Years” – Rahil Gupta, Co-Founder of Hop Electric

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As the global electric vehicle market finds itself in a tough spot, India’s use cases of electric two-wheelers and three-wheelers have come to the limelight once again. Can the industry continue to flourish without incentives or subsidies? Rahil Gupta, Co-Founder of Hop Electric, discusses with EFY’s Mukul Yudhveer Singh!


Q. How have the FAME (Faster Adoption and Manufacture of Electric Vehicles) subsidies impacted electric vehicle companies and retail sales in India?

A. With changes made in 2019 and 2021, there is a clear correlation between sales and the subsidies. For instance, a vehicle with a four-kilowatt-hour battery pack could receive subsidies of up to 60,000 rupees, with a maximum cap of 40% of the ex-showroom price. This effectively acted as a 40% discount, making EVs more affordable and reducing the cost gap between electric and petrol vehicles.

The government aimed to bridge this viability gap through demand and supply incentives. The demand incentive included the FAME subsidy and state subsidies, which combined could cover 50 to 55% of the vehicle’s cost. This approach led to a surge in the two-wheeler market over the past three years, as lower prices increased sales volumes and incentivised localisation of parts, improving the unit economics for OEMs.

However, as many OEMs quickly claimed these subsidies, the funds began to deplete, leading to a reduction in the subsidy amount and cap. Despite this, the market adapted, and sales continued to grow due to increased supply and reduced vehicle costs. The FAME subsidies have been a key driver in the rapid growth of the electric two-wheeler market, showcasing the government’s successful execution of this initiative.

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Q. With the overall penetration of EVs in Bharat beyond tier three being less than 5%, do you think the end of FAME subsidies will deter Bharat from joining the EV bandwagon?

A. Firstly, the FAME initiative helped build supply chains, and we are seeing increased capacities for lithium-ion cells in India and globally. The cost of these cells is decreasing, which is crucial since they make up 35-40% of an electric vehicle’s cost. As cell prices drop, electric vehicles can become more affordable without subsidies, potentially reaching price parity with petrol scooters. We have reached a point where electric scooters can compete with petrol scooters even without subsidies. Customers no longer must compromise on price, and electric scooters offer better total cost of ownership and future-proof technology. The value proposition is increasingly in favour of electric scooters.

While this may not yet be true for other vehicle categories like cars, trucks, and buses, the shift towards electric scooters is significant. I predict that by 2030, more than 50% of all new scooter sales will be electric.

Q. Do you attribute the expected growth of electric two-wheelers primarily to the declining prices of batteries, or are there other significant factors?

A. The primary reason for the growth in electric two-wheelers is indeed the dropping battery prices, which result from several factors. Firstly, countries like China are ramping up production capacities without immediate utilisation, leading to economies of scale. Secondly, advancements in technology are reducing the reliance on rare earth materials, making battery production more cost-effective. Additionally, optimised manufacturing processes are driving down production costs.

Another crucial factor is the concept of urban mining, where recycled materials from consumer electronics and EV batteries are re-integrated into the supply chain. This approach can be more cost-effective than traditional mining when scaled up.

Q. Could you provide some ballpark figures on the cost reduction if we start using magnets without rare earth metals?

A. There are two main types of lithium-ion technology used in electric vehicles: NMC (nickel magnesium cobalt) and LFP (lithium iron phosphate). LFP is cheaper than NMC because it uses fewer rare earth metals and more abundant materials like iron and phosphorus. Additionally, LFP is easier to recycle and reintroduce into production. Lithium constitutes less than 2% of the cost of a cell, so it is not a significant factor in the overall cost.

The challenge in India is not the availability of materials but the investment in cell manufacturing and recycling facilities. Lithium-ion technology is complex, and developing a cell is one thing, but manufacturing it at scale requires expertise we currently lack.

Q. What is your take on the economies of scale for motors and motor controllers made in India?

A. After batteries, the motor and controller are the second most expensive components, making up about 25% of the cost. India has a history of producing good motors, but the technology used in electric vehicles, like BLDC or PMSM, is different from the induction motors we are accustomed to. These motors require permanent magnets made from rare earth elements like neodymium, iron, and boron, which are mostly controlled by China, affecting prices and availability.

There are two key developments in this area. First, efforts are being made to recycle rare earth materials to reduce dependence on new supplies. Second, there is a shift towards alternative motor technologies that use fewer or no rare earth materials, like synchronous reluctance motors (SynRM) or switched reluctance motors (SRM).

On the controller side, India’s lag in the semiconductor space means we are still dependent on imports for components like MOSFETs and passive components. However, there’s progress in local manufacturing of these components, which will eventually reduce costs.

Q. Do you think there is enough time to solidify this approach before international competitors enter the market? Is the industry moving quickly enough in terms of R&D to avoid falling behind?

A. The FAME II incident highlighted the importance of building a robust supply chain alongside demand. The industry is learning from past mistakes, with many now focusing on developing future-proof technologies and robust supply chains. OEMs initially focused on meeting demand, but now there is a shift towards ensuring the supply chain can support that demand. The focus is now on testing and validation specific to Indian conditions, ensuring that products can withstand the diverse climate and terrain of India.

Q. Considering India is known for its software prowess, why haven’t we been able to develop effective algorithms that can optimise the powertrain’s performance?

A. The issue primarily lies in the lack of control over the hardware, specifically the controllers. Many companies have relied on off-the-shelf controllers with pre-existing algorithms that may not be tailored to their specific motor or application needs. However, companies that have taken the initiative to develop their controllers and firmware in-house have seen better results. By controlling the firmware, they can precisely dictate how the motor responds to various inputs and adjust to improve efficiency and performance. For example, they can update the firmware over the air to enhance the vehicle’s mileage or response time. Once we have this control, we can tailor the algorithms to suit Indian conditions and usage patterns, leading to better-performing vehicles.

Q. Given that firmware plays a crucial role at the OEM and Tier 1 level rather than the consumer side, do you think the importance of PLI (Production-Linked Incentive) schemes now increases, making them more crucial than demand incentives like FAME?

A. While FAME focuses on demand incentives, the government introduced PLI schemes for EVs to support both OEMs and component suppliers, including those making motors, controllers, and other electronics. This subsidy for localisation encourages businesses to invest in the EV value chain, even without immediate high volumes. For OEMs like us, the investment requirement under PLI is quite high, making it challenging for new industry players. However, for component suppliers, the investment threshold is more attainable, which has led to significant participation and utilisation of the PLI scheme.

This will increase supply chain capacity, resolving many current issues in the next 18 to 24 months. Once the supply chain stabilises, scaling up demand will not be a problem, and the electrification of Bharat will progress with both supply and demand moving in tandem.

Q. As we circle back to FAME and its potential discontinuation, do you foresee any ripple effects on the component ecosystem?

A. In the short term, there might be a slight downturn. However, I think this challenge will be overcome within a few quarters. By August, with the festive demand and a predicted 35-40% further drop in cell prices, the market should stabilise. The cost of cells, which constitutes 35-40% of the Bill of Materials (BoM), has already dropped by 50% from last year, and we expect it to decrease by another 35-40% by the end of this year.

For instance, if an EV is priced at 120,000 with a BoM of 100,000, where the cell cost is 35,000 to 40,000, a reduction in cell prices will directly lower the BOM cost. While more expensive scooters might remain at a higher price point due to advanced technology and larger batteries, for anything below 3kWh, it will be economically viable to choose electric options.

Q. How important is it to educate the end consumer about the declining battery cell process?

A. Educating Bharat about battery prices involves leveraging familiar concepts, like fuel prices, which are universally understood across diverse cultures and regions. To illustrate this, you can compare the historical trend of rising fuel prices with the falling prices of lithium-ion batteries, which have dropped by 85% from 2010 to 2020. This reduction is due to increased production and wider applications, from consumer electronics to electric vehicles.

Emphasising that batteries are not finite and can be produced and recycled multiple times, you can explain that their prices will continue to decrease. In contrast, finite resources like oil and coal will become more expensive over time. This fundamental difference supports the argument that electric vehicles are the future, with battery costs expected to reduce by an additional 80% in the next five years. By focusing on these principles, we can effectively educate Bharat about the economic and environmental benefits of adopting electric vehicles.


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Mukul Yudhveer Singh
Mukul Yudhveer Singh
Mukul Yudhveer Singh is an Editor at EFY. He’s an experienced business journalist who is both an enthusiast and a cynic of technology. Believes in data, as well as hunch-based journalism. He defines journalism as- reporting facts which help the audience take their own decisions, not ones that influence them!

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