By K Raveendran
The global electric vehicles (EV) industry is facing a slow down after two years of vigorous growth. The trend is also getting reflected in the Indian industry. Globally, this is forcing manufacturers to cut prices and India does not seem to be an exception.
According to Rystad Energy EV specialists, from the highs of December 2022, which propelled total global 2022 EV sales beyond the 10 million mark, January 2023 has been the mirror opposite with major markets reporting significant slowdowns. According to analysts, while the month-on-month decrease is in line with market trends, the significant year-on-year decrease poses a significant risk to the bullish expectations of the market.
Two possible developments have been cited as reason for the reversal. Countries that have seen a dip, such as China, Germany, Norway etc have all in some form or another reduced EV purchase incentives, either by removing upfront incentives, or restoring taxes that EVs were earlier exempt from. Due to this, a variety of deliveries got pushed from the early months of 2023 to December 2022 and in some countries, the vehicles have been registered on paper in December 2022, but automakers are yet to deliver the actual vehicle. This would imply that Q1 2023 will be a relatively weak quarter, but sales will pick-up starting from Q2 and H2 onwards.
The reduction in incentives has put off some customers from purchasing EVs. While the savings in total cost still favour EVs, the sudden increase in upfront cost would be the main deterrent. Analysts, however, add that this does not mean demand is dwindling. Tesla Motors, for example, saw a massive spike in orders when they announced discounts in various markets. Ever since, they have been slowly hiking prices in an attempt to establish the right price point.
In India, manufacturers like Tata have announced price cuts for certain models. The cuts are more due to tax reductions in the new budget rather than prompted by a dip in demand. The budget for 2023-24 has announced steps to accelerate the growth of the EV sector in India. These include the continuation of concessional duty on components of lithium ion batteries for another year and a reduction in indirect taxes on electric vehicles.
It is only in the four-wheel segment that EV sales in India have shown an improvement in the new year. In the case of all other vehicles, including two- and three-wheelers, the sales in January have come down to the December 2022 levels.
According to Rystad, the US was the only market to register a year-on-year growth in January EV sales, and this is to be expected given the market share is still only at around 7 percent, on the lower end compared to other developed markets.
Chinese battery manufacturers have been quick to adapt to the change in outlook. They are offering discounts on lithium to EV OEMs to attract more commitment of orders so as to consolidate their respective global market shares. This is taking place at a time when lithium prices are already dropping from last year’s historical highs.
Leading Chinese battery manufacturer CATL is reportedly proposing a new pricing mechanism to some of its customers from the second half of this year, which envisages purchase of 50 percent batteries on an agreed price contract and the remaining 50 percent at spot market prices. The average contract price of lithium carbonate of battery grade is said to be $29 per kg. The new pricing mechanism is set under a condition that OEMs will purchase at least 80 percent of their demand from CATL in the first 3 years.
According to analysts, the proposed discount on lithium reflects China’s over-supplied battery markets with domestic cell production reaching a level of 60 percent surplus in 2022.In fact, China is already stepping into other regions where local suppliers are unable to meet the supply demands. The new pricing mechanism is proposed as the battery supply chain aims to destock both lithium materials and battery supply this year.
The domestic Chinese battery-grade lithium carbonate price was $70,500 per tonne in January this year, down 18 percent from the record high at $86,000 per tonne in November 2022.However, the current price is still 40 percent higher compared to the same period last year. It is estimated that the lithium carbonate price in China will drop by another 40 percent by the fourth quarter from the current spot level. (IPA Service)
