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ELECTRIC VEHICLES

187-page bid document, sea of

paperwork: inside a plan to make
EV batteries locally that bars
Tesla

00:00 01:34

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

Concept by Muhabit ul haq

Synopsis

Under the recently launched production-linked incentive scheme, advanced battery-cell manufacturers
will get subsidies proportional to local value addition. With numerous audits, reams of documentation,
and strict commitments from the companies, the scheme may be a tough ask in India’s EV space, where
business visibility is still very low.

It’s being touted the mother of all schemes to

make products made in India globally
competitive. BY

Rajiv Ghosh

11 MINS READ
As the government on November 11 Nov 16, 2020, 12:31 AM IS

announced a production-linked incentive

(PLI) scheme of little under INR1.5 lakh crore
to boost local manufacturing in 10 sectors, an Share This Artic

enthusiastic industry joined the chorus of

applaud almost immediately. The auto and
auto-component industry got the biggest slice
of INR57,000 crore under the PLI scheme,
while advanced batteries received a shot in the FONT SIZE SAVE COMME

arm with a planned outlay worth INR18,100

crore.

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

But will the latest booster really fuel India’s

battery-manufacturing ecosystem, which is
still trying to nd its feet?

ET Prime went through the 187-page-long

model bid documents prepared by Niti Aayog
on advanced chemical batteries. Here’s what
we found out.

Reams of paperwork before you get there

To be sure, Niti Aayog got a million dollars
from the orld Bank and employed scientists,
technical e perts, and consultants to map out
the details for the scheme. It took the team a
year to prepare the proposal. It started with a
simpler plan, which became progressively
detailed with an emphasis on latest
technology and plenty of value-addition.
Apparently, it was necessary to factor in the
maze of industry speci cations, which the
document is replete with.

From detail around evaluation criteria to

conditions on how the subsidies will be given
to tests and audits, the model bid document
mirrors one thing for sure – it’s not going to be
just anybody’s (read small entities) cup of tea.

Quite literally, a company interested in

participating in the PLI scheme and take
advantage of the subsidies, will need to be a
billion-dollar enterprise with an army of legal,
nancial, technical, and marketing teams to
evaluate the document and make the bids.

For example, the request for the proposal itself

has 14 appendices:
Letter comprising the bid

Power of attorney for signing of bid

Power of attorney for lead member of

consortium

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

Net worth of the bidder

Format for technical bid

Format for nancial bid

Credit rating

Bank guarantee for bid security

Instructions for online submission

GFR order

Joint bidding agreement

Format of letter of award

Draft programme agreement

Draft tripartite agreement

While the government is looking at getting

big-ticket investments into advanced battery
manufacturing, how is the market placed right
now?

“The market is still in early stages and

experimenting with multiple options of cell
chemistry,” says Rino Raj, chief operating
o icer-energy and battery business, Tata
Chemicals.

According to him, there are both pros and cons

of having cell manufacturing closer to the
market in India.

Pros: Any global scale and large-enough EV

company have strong tie-ups and proximity to
cell manufacturing as well. This is necessary as
a core component of the EV’s performance –
including power, range, cost, safety, life,
temperature tolerance, time to recharge etc.
are directly related to cell performance, which
in turn is determined by cell design and
manufacturing precision. For the same basic
cell, in addition to savings in logistics costs,

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

savings from customisations for local

conditions, savings on import duties are all
very tangible and have immediate bene ts.

Cons: In the short run, the need for securing

critical materials, lack of supply chain, and the
uncertainty over demand are all relevant. In
the long run, the real question is whether
Indian demand and export competitiveness
can support a global-scale ecosystem of cell
manufacturing – particularly specialised
materials and R&D development.

A detailed look at a few important points of

the scheme reveals how deep-pocketed the
bidder needs to be.

Quali cation and evaluation

To qualify, one must have a net worth of
INR225 crore per Gigawatt hours (GWh), and a
minimum credit rating of AA+ in India and
BB+ abroad. For perspective, Tesla is rated BB-
and wouldn’t, therefore, qualify for the scheme
in India. Tesla can, however, team up with an
Indian company with AA+ and above ratings
and make it a signing partner in the project.
The scheme allows for a consortium, where the
primary bidder has to retain a minimum of

26% stake for several years.

But how important is it to tie up with

established companies such as CATL or LG
Chemicals?

Raj says partnership with established

companies would help in the short term with
in ux of existing technology. However, this
may hamper development of own strengths for
the future. “Hence this route has to be
balanced with a strong programme for
domestic R&D and own development of
technology suited for India. Given it is a still-
l i t h l th ill b i

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

evolving technology, there will be a growing

need for self-reliance,” he adds.

While it is true that many of the current cell-

makers were small few years ago, many are
now o ering breakthrough results backed by
extensive technology investments. However,
with many of the most innovative core
technologies being developed by small teams
across the world, the space may not be as
closed as it appears.

Tata Chemicals in its latest annual report has

outlined that it is going to invest majorly in

the lithium-ion battery value chain. It has

acquired 127 acre land at Dholera, Gujarat, to
house its future manufacturing facilities. It is
looking to supply chemicals that go into
batteries, set up a pilot plant for recycling of
lithium-ion batteries, and is evaluating
lithium-ion battery manufacturing as well.

So, what could be Tata Chemical's strengths in

this area?

Raj says “The critical technology centres

around the active chemicals and additives
which promote and regulate the transfer back
and forth of electrical charge within the cell.
Many of the important properties are
determined by the choices of cell chemistries
and materials developed for better cathodes,
anodes, electrolytes, and separators. After
chemistry and electrochemistry, strengths in
electrical and thermal management are
important. Tata Chemical’s strengths in
speciality chemistry allow it to play a very
dominant role in active materials, cells and
recycling critical materials.In fact, we see a
unique opportunity to establish a sustainable
circular economy in this domain.”

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

Under the PLI scheme, after passing the

eligibility test, an entity needs to competitively
bid for the subsidy per unit, the lower the
better. But a higher weight is on the level of
the value addition and the scale of production.
Now, let’s look at few of the formulas and
calculations behind the evaluation criteria. We
have simpli ed the document for you.

The bidders with the highest composite score

will get allocation of up to a cumulative
capacity of 50 GWh.

Incentives and penalties

Here’s how the subsidy will be calculated.

Say a company bids at INR1,600 and gets 40%

value addition done in India. It will get
1600X40% or INR640/ kilowatt hour (kWh)
subsidy. If the battery cells have better than
the base life or energy-density cells, as
speci ed in the graphics, one can get 20% to
107% higher subsidies. The white spaces fall
below base case and will get no subsidies. The
model bid document also outlines test
methods for lifecycle and energy density.

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

If the bidder slips on the commitments to

value-addition and capacity, it will be
penalised with lower subsidies. For e ample,

if the company had promised to make 10

G h but commissions 8G h, it will get
subsidies based on 6G h, despite
commissioning 8G h. Similarly, if a
company has committed to 50% value
addition but achieves 40%, it will get a
reduced subsidy payout. For industries,
where demand visibility is low, this means
the policy is, in fact, increasing uncertainty,
as subsidies are an important part of return
e pectations. The accelerated reduction of
subsidy is also going to be hard on the
industry.

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

If a company doesn’t achieve a minimum of

60% of the overall domestic value-addition, it
won’t get any subsidies from the fth year. But
take a look at the paperwork. The letter for
request for release of subsidies, to be paid
quarterly, has seven possible enclosures.
Subject: Request for release of subsidy
against subsidy-eligibility certi cate XXX
received dated XXX.

With reference to the above-mentioned

subsidy-eligibility certi cate number xxx,
assigned by the Department of Heavy
Industries dated xxx, M/s/ xxx (bene ciary
name) hereby submits its application for
release of eligible subsidy under “National
Programme on Advance Chemistry Cell
(ACC) Battery Storage” for the period xxx–
xxx (quarter), in accordance with clause xxx
of the programme agreement dated xxx
signed between the government and the
xxx (bene ciary rm’s name).

xxx (bene ciary rm’s name) has

successfully sold xxx cells of xxx kWh each
capturing xxx% value in India during the
aforementioned quarter. The overall
calculated subsidy, therefore, comes out as
INRxxx.

In this regard, the government may kindly

do the needful to release the eligible
subsidy of INRXXX against the veri cation
of following enclosures.

List of enclosures:
Undertaking for subsidy parameters
(energy density and cycle life) of the sold
cells in line with current subsidy
certi cation

Subsidy determination form

Certi cate for value addition in India

Certi ed statements by statutory auditor

id i i t f t d l f

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evidencing receipt of quantum and value of

raw material, inputs, semi- nished goods,
capital goods, and nished goods, along
with the respective tax credit (if applicable)

Certi cate from statutory auditor certifying

the sales and capacity of manufactured
goods/trading goods/scrap/ stock transfer
and GST paid the number of sales reported
in nancial statements and GST returns

Unit-level audited accounts for the relevant

nancial year, where the bene ciary rm is
operating through various ancillary units
(if applicable)

GST audit report for the relevant nancial

year for the bene ciary rm

The government has also laid out what is

localisation.

The format is as follows:

Sale value of the said goods, excluding taxes

-Cost of raw materials, packaging material, and
fuel
-Cost of materials whose source of origin
cannot be ascertained
-Cost of forex spent on royalty and technical
knowhow, directly or indirectly + value-added
by ancillary factories and indigenous
manufacturers/sale value of the said goods,
excluding taxes X 100%

The government is strictly trying to maximise

domestic value addition from materials to
R&D with this formula.

Raj says there are global suppliers eager to

provide supplies for some of the critical raw
materials which India does not have from
multiple geographies.The rest of the supply
chain ecosystem can be built and in the long
run, is best for future energy security of the

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11/16/2020 187-page bid document, sea of paperwork: inside a plan to make EV batteries locally that bars Tesla - The Economic Times

country, rather than rely on and strengthen

existing suppliers of value-added materials.
However, this development is predicated on a
development of the large domestic market.

The government has kept the draft policy

document open for stakeholder comments till
December 14, 2020.

The shadow of the red tapes

While in most of the largest auto markets such
as China, Europe and the US, the electric
vehicle (EV) ecosystem is being developed at a
dizzying speed with visibility of demand
getting clearer by the day. In contrast, the
picture in India is still hazy in the absence of
strong domestic demand. So, it won’t be easy
to get major investments.

“In India, a key missing link in developing the

EV value chain is people who understand why
the adoption rate is low for current generation
of EVs. The Indian auto industry neither
understands EVs from a technological
standpoint to make good enough solutions nor
will it push for adoption as companies aren't
losing any of their traditional ICEV (internal
combustion engine vehicle) business,” says

Apoorv Shaligram, co-founder at Alchemist e-

Vaahan, an EV startup.

So, what can make battery-cell making an

attractive business proposition in India?

"Su icient charging infrastructure so that

domestic EV demand can grow without
customer anxieties," says Raj from Tata
Chemicals. He also highlights the need for
duty protection till the industry and the
related ecosystem matches up the scale
attained by countries, where government
support has already created signi cant supply
b d iti

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base and excess capacities.

Right now, original equipment manufacturer

(OEMs) are reluctant to take the plunge and
push EVs as there are no pro ts, and products
are expensive for their range and performance.
A classic case of innovator’s dilemma. “But this
creates a strong opportunity for startups and
EV-focused players to establish themselves as
the product of choice and disrupt the
incumbents,” says a senior auto analyst.

The government is expecting the industry will

take a lot more risk and embrace EVs. But are

policymakers, on their part, doing enough to

make sure EVs get more visibility on Indian
roads? Can they all come together to rmly
curtail ICE vehicles and push EVs, at least in
cities, or will that be too much of political risk
to take?

The document seeking investments for

advanced battery-cell manufacturing was
detailed but too many clauses — intended for
transparency and frauds-prevention — make it
look like a killjoy. The government says this
will be a single-window clearance project,
where it will work with states. But the request
for proposal smells of red-tape and
bureaucracy.

(Graphics by Sadhana Saxena)

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