New faces will compete with Amara Raja in lithium-ion batteries for years to come: Vikramadithya Gourineni
We believe this will be temporary, as we have just seen an increase in the discovery of vital material reserves.
The more we look for these materials, the more we will find. As long as raw material costs and supply remain relatively robust in line with demand for battery cells, we may expect to see some very substantial discounts over time. We hear you intend to invest approximately Rs 9,500 crore in this factory over a ten-year period.
What are the potential outflows over the next few years, and how are you expecting to fund this substantial capex?
We are attempting to build a couple of different facilities in phase one over the next 24 months or so. The first facility would be a commercial pilot plant, which we just broke ground on, as well as a two-gigatonne-hour manufacturing facility. We are also constructing a world-class engineering center in another area. We will begin to accelerate all of our R&D initiatives. This will equate to approximately Rs 2,000 crore in spending.
We are fairly certain that we will fund phase one through internal accruals and internal cash. Capital structuring is being planned for the remaining Rs 9,500 crore. We have not immediately committed resources for this, but we are optimistic that with our cash flows and debt-free status, we will be able to manage these capital flows.
How reliant on exports will you be in manufacturing a single battery pack, and how much localization of the product are you aiming for in the long run?
When we talk about localization, 25% of the value added may originate from domestic sources on day one. For the foreseeable future, we will be heavily reliant on raw material imports.
However, a good goal that we will try to look at is reaching 60% of domestic value addition over a five-year period.
Do cell manufacturers make the initial investments in upstream raw material suppliers such as cathode?
I believe that cell manufacturers are currently being more proactive in setting up units. However, for every dollar we invest in capex for cell manufacturing, other players will need to invest three to four times that amount to produce the critical raw materials we require.
In five years, domestic value addition should account for 60% of total revenue.
Solar power costs Rs 15 per unit five years ago. However, due to innovation and superior technology, they have been reduced to Rs 3 per unit.
Do you see a similar factor at work in battery/cell manufacturing, with prices dropping by 60%, 70%, 80%, or even 90% in the next three to four years?
That’s a good analogy, and it’s the kind of trend that battery technology has been showing in recent years. However, battery prices have increased in the last two years, as have solar prices.
We believe this will be short-lived, as more and more reserves of critical materials have been discovered recently. The more we search for these materials, the more we discover. As long as raw material costs and supply remain relatively robust in line with demand for battery cells, we can expect to see some pretty healthy discounting over time.
Do you believe you must continually invest in R&D to keep up with the technological revolution and competition?
Absolutely. Despite being only a few decades old, lithium-ion technology is still in its early stages. Every day, we see not only new innovations in lithium technology but also many new battery chemistries that may eventually be able to replace it in certain applications.
We are making a significant upfront investment in building an R&D engineering center and staffing it with talent because we recognize that we are doing this for the first time with the majority of the world. We must maintain our lead. We must ensure that we maintain a technological advantage. This will be a recurring expense that we must budget for each year.
How much of a game changer could it be for Amara Raja, the industry, and the entire country if the real bonanza we have hit as a country is in terms of lithium reserves, first in Jammu and Kashmir and then in Rajasthan?
That is an excellent way to break it down. As a company, we are both cautious and optimistic about it. We are very optimistic about it, but we are not currently factoring these discoveries into our plans through 2028 because there is still a lot that needs to happen. It takes time to discover reserves and then to figure out how to extract them profitably. But, as a citizen, and in terms of what it means for the country, I believe we should be very optimistic about this because, eventually, we will be very dependent on lithium and other metals.
Our sources are primarily Chinese, but other countries are also involved, and they are acting quickly. If this can provide a competitive advantage in the medium to long term, it bodes well for the country. Of course, lithium isn’t the only metal we should be looking for; there are other critical metals to consider as well, such as nickel and cobalt. Hopefully, we’ll be able to seize some of those resources as well.
What is the state of the comparative landscape? Amara Raja and Exide were the two companies that claimed, “Guys, we’re the R&D, we know how to transition from a lead manufacturing battery to a lithium manufacturing battery.” However, guess what?
15 companies have claimed the same thing in the last three years. Is the entire battery manufacturing landscape resembling the dot-com era? I just have the impression that things are becoming overly competitive. Is this true?
Maybe. We are underestimating the depth of technology required to make this type of battery because so many companies are interested in it. Even as a lead acid battery player, I believe we are discovering a lot more complexity, as well as significantly more difficult and sensitive processes. With that said, I do not believe that the traditional two players – Amara Raja and Exide – will be able to compete in this market on their own.
Many domestic and international players have expressed interest. Larger global players have not shown as much interest in India at this time, possibly due to other markets such as Europe, the United States, and China. However, not all domestic players have access to cutting-edge technology. Technologies require time and effort to develop.
However, just because you have technology does not mean you can scale it up and create a large-scale, efficient, and optimal manufacturing ecosystem. Amara Raja certainly has its advantages and disadvantages. Over many decades, we have demonstrated our ability to build world-class manufacturing ecosystems.
But I believe we will face a slew of new competitors, new faces who will keep us honest for many years to come.
What is your product mix, and how do you see it changing in the next three to five years? When will you declare that you are producing more lithium batteries and fewer traditional lead batteries?
We have not determined the exact years. Lithium revenue growth will be much faster than lead revenue growth. Simply put, the battery is significantly more expensive. While we now produce lead-acid batteries in millions of units, each car only has a single battery, which is much less valuable, whereas each pack that we produce is much more valuable.
As a result, revenue growth will be much faster. I’m not sure where they’ll intersect and lithium will begin to cross. But I also want to emphasize that, for the time being, all of the growth in lithium will not come at the expense of our lead acid battery business. In fact, India is a very unique case in that, despite significant investments in electrification and mobility, we are still a country with significantly lower car penetration than even many parts of the developing world.
Every year, there will be some pretty healthy, robust growth, even on the IC engine vehicles. And we will continue to expand our capacities as well as our product offering in that segment. So, for the next 10 to 15 years, I doubt the lead acid battery industry in the United States will reach a plateau.
But, if lithium has a higher profit margin and a higher return on equity, why would you invest in traditional battery manufacturing capacity?
I would not say that we have concluded that lithium is a higher margin business today; until there are sufficient domestic sources for raw materials and other things fall into place, we believe that lead acid batteries, particularly the aftermarket business, will remain significantly more profitable and appealing.
It is more that there is a rate of growth that we are looking at with lithium. Local mobility is where we will see the fastest adoption of two-wheelers, three-wheelers, commercial light vehicles, delivery fleets, and other segments such as longer-range mobility and passenger vehicles. It will require some time. Even by 2030, the most optimistic projections show a 10-20% market share. It will take some time.
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Content Credit: THE ECONOMIC TIMES
