New Delhi: The case for building huge factories -- or gigafactories -- to manufacture lithium-ion batteries for electric vehicles (EVs) in India has a curious twist. The country may be adding capacity way beyond what its EV market -- spanning cars, two-wheelers and three-wheelers -- will need in the near future, raising questions over whether battery makers can turn a profit.
Both industry players and experts say the way out is for battery manufacturers to look beyond EVs for sales -- in industries such as drones, telecom towers, power tools, data centres, and stationary storage for C&I (commercial and industrial), among others.
According to data from company presentations and announcements, Ola Electric, Amara Raja, Reliance Industries, Tata's Agratas, Exide Industries and JSW Group are cumulatively putting in capacity that may add up to 100GWh by the end of this decade.
Mint's queries to these companies remained unanswered till press time.
Harshvardhan Sharma, group head for auto tech and innovation at Nomura Research Institute Consulting and Solutions India, pointed out that the country's planned cell capacity already exceeds 70 GWh by 2027 against a domestic demand outlook of 35-40 GWh, and adds that diversification over the next three years "could contribute 15-20% of demand absorption".
He added that companies that approach battery manufacturing as a broader energy systems business rather than focus purely on EVs, will achieve more stable earnings before interest, tax, depreciation and amortization (Ebitda).
"Battery manufacturing is a scale-driven business; however, India's EV market, dominated by small packs in 2Ws and 3Ws, cannot absorb such volumes yet," said Ravindra Patki, managing partner at Vector Consulting Group, adding that battery makers will have to diversify both in use cases as well as chemistries to be able to meet demand across industries.
For perspective, a cell gigafactory with just 4 GWh capacity can produce enough cells to power a million scooters, each of which has an installed battery of 4 kilowatt per hour.
Comparatively, in the previous financial year, a total of 1.14 million units of electric scooters and 107,000 electric cars were sold in India, data from Vahan portal showed, signalling impending overcapacity and potential margin pressures.
Ola Electric and Amara Raja Energy, two of the country's top lithium-ion battery manufacturers that are hoping to challenge China's dominance, have told investors that profitability for the cell business can be achieved at 4 gigawatt hour (GWh) annual capacity.
While Ola Electric is building a gigafactory with a total capacity of 5 GWh, Amara Raja has laid out plans to build a 16 GWh lithium-ion battery plant.
During a meeting with analysts last week, Hyderabad-based Amara Raja said the use cases of lithium-ion batteries will mainly be divided into automobile sector, telecom sector, and data centres, among others.
"Almost 30-40% of this demand (total lithium-ion battery demand) would be needed for storage," analysts at Motilal Oswal wrote in a note on 1 October. "As per the current estimates, almost 80-90% of this demand is likely to be met with domestic sources."
Investors and analysts are sceptical about the returns Amara Raja can get from the cell business whose commencement has already been delayed from FY26 to FY27. "While the market is optimistic about Amara's li-ion initiative, we are cautious about its potential returns," Aniket Mhatre of Motilal Oswal wrote in the note.
Ola Electric chairman and managing director Bhavish Aggarwal has said there are multiple segments available for the company to foray in lithium-ion cells, which can help in delivering scale and profitability.
"The scale can be from our own internal requirements, the scale can be potentially from export opportunities that our 4680 cell opens up, the scale can be from BSS (battery swapping station) opportunities in the future that we might get into in different business strategies," Aggarwal said during the company's April-June quarter earnings call, adding that it is not necessary to have government subsidies to have a profitable case in the cell business.
Aggarwal had previously, in December last year, said the company would be open to offering cells to sectors like drone manufacturing and consumer electronics.
"Thinking of offering our Bharat Cell for Indian startups building products that need batteries -- power tools, medical devices, automotive, drones, consumer electronics, etc.," he wrote in a post on social media platform X.
Some are sceptical about profitability margins in the business, with Ather CEO and co-founder Tarun Mehta suggesting in an earlier interview with Mint that companies need very high volumes of EV sales to make a justifiable case for cell manufacturing.
"Companies at the scale of 3-4 lakh (300,000-400,000) electric scooters in a year -- at that scale of cell production -- have rarely ever been profitable," Mehta said. "A lot of cell production is tricky. You see gross margin improvement, but your cost of production is so high that your Ebitda impact comes out much worse."
Investors are probing on profitability as most of the companies in the sector have invested more than ₹1,000 crore in setting up their gigafactories.