Will China's New Battery Component Export Curbs Hurt India?

The recent decision of the Chinese government to control exports of key battery components across the globe is likely to give a jolt to key manufacturing industries like Electric Vehicles (EVs) and Battery Energy Storage Systems (BESS), either in the smaller segments or the utility-scale projects. While the decision seems to be taken in retaliation for the US-China tariff war, ahead of the meeting of the heads of state of the two countries, its repercussions for India cannot be ignored.

The good news first. There is unlikely to be an immediate impact, as the key reference used by the Chinese government, for exports of lithium-ion batteries (cells & packs) ≥300 Wh/kg, is not one that is used by developers yet. Even the production plans in India currently target LFP cells of below 200 Wh/kg, well under the 300 Wh/kg limit. That makes it clear that the Chinese are targeting the latest generation of technology, not the one in use in the past, which is still serving most exports. The higher density chemistries being restricted will have uses in EVs, drones, and other defence-related equipment, which will force markets outside China to be dependent, or invest more aggressively in finding alternatives. 

Similarly, LFP cathode materials and graphite anode materials marked for restrictions and key manufacturing equipment for cells, anodes, and cathodes are also below the threshold capacities that will hit stationary storage demands in India.

Impact on Solar+BESS Market

The Indian solar developers were recently buoyed by the decline in global battery prices, which allowed India to see one of the lowest solar+BESS tariffs, as low as Rs 2.70/kWh, as seen in a recent such project in Madhya Pradesh. The majority of these BESS installed in the country were derived from Lithium-ion battery packs supplied by Chinese companies like CATL, BYD, Gotion, among others.

These plans seem safe for now, unless there are further changes to Chinese rules. In fact, some developers could actually benefit if Chinese manufacturers seek other export markets beyond the US, if the China-US tariff war continues to escalate.  

Impact on the Hybrid Rooftop Solar Market

Several battery companies in India have now pinned their hopes on the rise of rooftop solar with hybrid connections, where batteries are connected with the inverters. This has led to the opening of new opportunities for a number of battery companies or the addition of this as an additional portfolio to many solar inverter companies like Eastman Auto and Power Limited, Microtek, among others. While companies like Eastman have already started the manufacturing of Lithium-ion-based batteries for this segment, Microtek is on the verge of starting Lithium-ion batteries from next year.

Most of these companies now see a fast transition of battery technologies from Lead-Acid to Lithium batteries. In case the supply chain gets disrupted due to more stringent export control of Lithium-ion battery packs and cells, this segment is likely to see some hiccups, and most likely the manufacturers (or the assemblers of battery packs) are likely to pass on the pressure to the customers.

EV Sector

The most vulnerable out of all the sectors in India is now the EV sector, where Lithium-ion-based batteries are an integral part of their manufacturing. Already smarting from China's restrictions on rare earth magnet exports, firms planning cell-level manufacturing, with the dependency mainly on China for the supply of cells, anodes, and cathodes, will need to be wary of the impact. The Chinese government has clarified that these moves are not bans but an additional set of regulatory actions and scrutiny to safeguard the interests of the country.

With Indian firms depending on China for manufacturing equipment as well, those are the plans likely to see a hit or be under a cloud, as Chinese firms evaluate compliance with their government rules. Investors won't be happy with the uncertainty, putting at risk at least a few plans to raise money from the markets for such expansion.