India's EV Battery Swapping Policy is Out. Here's what You Need to Know

Electric vehicles continue to remain the hottest and emerging trend in the market.

Almost all Indian automobile behemoths have ventured into the EV domain to some extent.

The commercial vehicle market saw the debut of its first electric vehicle (EV) with the Revolt RV400 in 2019. This was followed by Tata launching their Nexon EV model.

Maruti, for a very long time, was sitting on the fence with its EV plans despite industry rivals Mahindra and Tata making significant forays into the segment.

According to a report, Tata Motors today controls almost 90% of the EV market in India. However, this could change very soon.

Maruti, still the largest car maker in India, recently announced a staggering Rs 100 bn investment in developing their EV division. They have plans to launch their first EV model in the next three years.

Where's the Indian EV Market Headed?

The transition has started. The penetration in the EV segment is moving at breakneck speed. Statistics say there are about a million EVs on Indian roads today.

Everyone has read about or seen videos of the batteries blowing up in EV two wheelers recently. But that has not slowed down the pace of EV adoption in India which is growing at a whopping 200% per year.

Despite the progress, the sector has had to deal with a ton of issues.

For one, there have been supply chain challenges that have adversely impacted the performance of major automakers. Add to that chip shortages, increase in lithium prices, and skyrocketing oil costs have contributed to the woes of automakers.

Most importantly, the issue of battery charging infrastructure and range anxiety is yet to be addressed by the government of India. This puts a huge question mark on the sustainability of e-mobility in the country.

But it is not all gloom and doom.

In order to drive EV adoption, a number of state governments are offering incentives where as much as a 25% subsidy is being provided on the average sale price of an EV.

Moreover, the government of India has also announced a Rs 257 bn investment to push EV initiatives forward by 2025.

Can NITI Aayog's Battery Swapping Policy Boost the EV Ecosystem?

In alignment with the objectives of central and state governments, the finance minister of India Nirmala Sitharaman announced the EV battery swapping policy during the 2022-2023 union budget.

The policy was intended to reduce the cost of buying EVs in India and tackle the issue of battery charging.

The larger goal of the policy is to help the Modi government to minimise carbon emissions by up to 35% by 2030 as part of the commitment under the Paris Climate Agreement.

The government of India's think tank NITI Aayog has finally rolled out the much talked about EV battery swapping policy draft in April 2022. The draft policy outlines several incentives for both EV manufacturers and owners.

As an alternative to setting up charging stations, the core focus of the policy is on battery swapping.

How will the system work?

EV owners will visit their nearest energy operator to lease the charged batteries. They only pay for the amount of energy consumed.

The operators, in turn, buy the batteries from the manufacturers in bulk. They set up the charging station and sign an agreement with the EV owners to swap the drained batteries.

Under the current circumstances, battery swapping can only be used for smaller EVs like two and three wheelers that come with smaller sized batteries. This makes the swap easier.

However, the plan is to work towards implementing this solution for four wheelers and e-buses in the long term.

What Is India's New Battery Swapping Policy?

Remember the era where you could replace mobile phone batteries instantly if they ran out of power? The concept is exactly that.

EV owners are not required to own the batteries if they opt for battery swapping. They will only hold a lease on it. So, whenever the battery runs out of charge, they can remove the discharged battery and replace it with a charged one at a designated swapping station in minutes.

To the EV owner, the swapping service provides flexibility to charge their existing batteries at their convenience. Moreover, the availability of an instant replacement battery ensures the vehicle remains operational with minimal downtime.

The battery service will be made available to EV owners on a subscription or a pay-as-you-go model.

The policy effectively addresses core industry challenges that are impediments to EV adoption in India - range anxiety, battery replacement cost, and space constraints to set up charging infrastructure.

Battery swapping is a disruptive business model where the EV battery is being tabled as 'battery as a service' (BaaS) for the very first time in India.

This will also bring down the total cost of the EV by as much as 50% which is more or less equivalent to the cost of the EV battery itself.

To make this model more attractive to EV owners, the policy proposes to offer a 20% incentive on the lease or subscription cost of the battery. This is over and above the incentives already being given to individuals for purchasing clean vehicles.

What Are the Policy's Key Proposals?

There are several proposals outlined in the draft policy by NITI Aayog.

The first of which is a recommendation to the GST Council to consider a reduction of the differential tax rates on EV supply equipment and lithium-ion batteries. Right now, it stands at 5% and 18% respectively.

The second proposal is about offering similar incentives to existing EVs that have been manufactured with fixed batteries instead of removable ones.

The policy does not specify the size of the incentive. However, it does propose taking into consideration the kilowatt hour (kWh) battery rating and the level of EV compatibility to determine the incentive size.

The draft policy proposes a multiplier that may be applied to the subsidy. This will be allocated to battery providers that will help account for requirements related to float batteries at the swapping stations in different battery swapping ecosystems.

According to the draft policy, the government will define a specified contract duration that will be binding between the battery providers and the electric vehicle owners. This will ensure continuity for the battery swapping services after having received the subsidy.

The policy also outlines the need for state governments to make sure that the public battery charging stations are qualified to claim concessional rates on EV power connections.

The draft policy recommends bringing these swapping stations under the current or future time-of-day (ToD) tariff regimens. This will ensure minimal consumption of power as swappable batteries can be conveniently charged during off-peak hours when electricity rates are more economical.

In light of the recent 'EV batteries going up in flames' incidents, the draft policy has taken up the issue of EV safety as a priority. The plan proposes to implement the highest levels of rigorous testing protocols to prevent any unnecessary temperature spikes at the electrical interface.

This will be possible with the implementation of the IoT based battery management system which has to be self-certified and open for testing and scrutinising its compatibility with multiple systems.

Other capabilities that can ensure better protection of assets include remote monitoring and immobilisation features.

Governmental bodies like State Transport Authorities and Transport Departments will have a vital role to play in streamlining the registration processes for EVs that have been sold with fixed batteries.

Land allocations, planning and zoning permissions for battery swapping stations will be under the purview of various municipal corporations.

Lastly, the draft policy recommends setting up the battery swapping stations across key locations such as public parking spaces, retail fuel pumps, malls, and general departmental and kirana stores.

Metropolitan cities with a population of 40 lakhs or more will be on the priority list for setting up battery swapping stations in the first phase. Cities and towns with a population of 5 lakhs will be covered in the second phase.

Will it Be a Smooth Ride Towards Implementing India's EV Battery Swapping Plan?

The intentions are noble. That said, there are bound to be some speed bumps along the way.

These key aspects are left open to interpretation or left unaddressed in the policy which may act as an impediment to implementation in the future.

To begin with, the swappable battery model has not been a widely accepted concept outside of China.

But it is an effective and convenient way to address the industry's core challenges to EV adoption - really slow charging time, range anxiety, and high cost of replacement EV batteries.

The policy is also restrictive in nature where it only supports battery swapping for those that come under the FAME II scheme, or under the ACC PLI scheme.

This implies that only high speed EVs with a certain minimum range will be able to benefit from this model. Those with a lower capacity and speed will not be eligible to subscribe to the 'BaaS' model.

The policy does not fully address the communication standard and protocol for battery packs to other equipment. It mandates the Bureau of Energy Efficiency (BIS) to define, approve, and ensure technical closure.

Will the One-Size-Fits-All Tactic Work?

Industry bigwigs think not.

Formulating a policy draft and actually executing a standardisation at the point of implementation is no mean feat.

As a matter of fact, there is no concrete proposal on standardisation of battery dimensions, size, voltage, connectors, to establish interoperability between vehicle and battery in the policy.

The likes of Maini of Sun Mobility say that going forward the government has plans to develop a standard 'one size fits all' battery for EVs. However, this can limit innovation in the space to a large extent.

Overall, the lack of clarity on standardisation may be a deterrent where manufacturers will only focus on battery swapping when a standardised ecosystem has been created in India.

That said, it is not all quiet on the western front.

Early movers in the market such as Reliance Industries and United Kingdom's BP Plc have ventured into a joint partnership in the battery swapping business already. Hero MotoCorp and Taiwan's Gogoro have formally partnered for swapping too.

Sun Mobility and Japan's Honda have also set up a joint venture for battery sharing and swapping and are expected to gain when this policy goes into action mode.

At the end of the day, the policy will evolve through a stage of good, better, and best. Only time will tell if India can prove its merit and achieve its clean vehicle goals of 2030.

For investors, this can be a golden opportunity to ride this massive EV wave and get some tangible skin in the game.

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