For EV makers, the lithium price crash should be good news. It isn’t.

Manufacturers turned generous in February, after a crash in lithium prices cooled battery prices. Tata Motors, maker of electric Nexon, Punch, Tiago and Tigor, cut prices by 1.8-8%, while MG Motor India, a distant No.2, dropped prices of its flagship ZS EV by up to 17%. The price cuts sparked a brief revival, before cooling in April—up 23% year-on-year, but an equivalent decline from the preceding month.

According to Tata Motors, which sells seven out of 10 electric cars in the country, potential buyers are deferring purchases, expecting more price cuts ahead. The result: Cheaper cars, and more buyers sitting on the fence.

Also read: Prices cut, but are EVs more economical than petrol cars?

“One of the reasons we suspect the entire global EV market is in a bit of turmoil is because of the sharp corrections in prices (of EVs), where people seem to have now adopted a wait-and-watch attitude rather than secure what’s there in front of them," P.B. Balaji, group chief financial officer, Tata Motors, said in an earnings call last week.

Cooling sales growth

According to official data, EVs accounted for 2.2% of passenger vehicle registrations in April, down from 2.9% in March, and only marginally higher than 2.1% in April last year. Meanwhile, hybrid cars have powered ahead with greater fuel economy and zero range anxiety, despite enjoying no tax incentives. In 2023, Indians snapped up a record 82,607 hybrids, rising four-fold from a year earlier to cross EV sales of 81,710 units. In January, the government set up a panel to study whether hybrids should have lower compensation cess.

On Thursday, Mahindra & Mahindra, India’s third-largest EV maker, said is closely looking at hybrid technology, even as its focus remains on EVs. “If it’s (hybrids) required, we’ll be ready for that. If there are significant changes in hybrid tech that cause it to be much more like an EV, then that’s something we’ll move into much faster," managing director Anish Shah said in a post-earnings press conference, adding, “At this point in time, we feel good about the focus on EVs."

The growth of EV sales has cooled worldwide over the past year, as early adopters make way for more demanding mass-market buyers. The plunge in battery prices and the decision of some automakers, including Tesla, to promptly pass on price cuts to customers may have made this worse.

Also read: JSW woos a Chinese tech partner for its lithium-ion cell project

‘Price cuts haven’t helped'

Dealers confirmed that price cuts didn’t do much for demand. A Delhi-based MG Motor dealer said that overall demand or enquiries for EVs didn’t rise significantly after the price cut. However, cars meant for city usage, like the MG Comet did see a small uptick in demand after a ₹1 lakh price cut ( ₹6.99 lakh from ₹7.89 lakh).

According to Prem Shenoy, managing director of Prerana Motors, which runs a Tata Motors dealership, EV buying is “not price-linked" at this point in time. “An EV is still an experiential product. People who want to buy an EV buy it because they want to buy an electric product. It isn’t a need-based purchase; so as of now, it isn’t affected by price cuts so much. However, buyers who were on the fence and considering buying an EV may choose to wait a few more months to see if prices reduce further", Shenoy said.

Prices of lithium, the key mineral in EV batteries, fell 80% between November 2022 and February 2024, cascading into lower battery prices. Meanwhile, efforts to curb its oversupply in China may stabilize prices. “Prices for battery-grade lithium carbonate and lithium hydroxide on the basis of cost, insurance and freight to Northeast Asia were range-bound at $13,000 to $15,200 per metric tonne (mt) throughout the first quarter of the year," S&P Global Commodity Insights said in a report dated 16 April.

Also read: India sets up task force to accelerate EV drive

Stabilizing lithium prices

Balaji of Tata Motors said, “We saw a sharp correction in battery prices, which we passed on to customers. When the accounting happens, we will definitely have more credits coming in, in subsequent quarters as well. I believe prices are now stabilizing, going by the prices of lithium hydroxide prices or lithium carbonate. Therefore, I would expect the fall in prices to flatten. The likelihood of prices going up is lower than the chances of them stabilizing. We’ll have to wait and see how the EV market evolves as price instability returns… Some degree of stability will bring calmness to the market and calmness is important for growth."

“Asian lithium prices are likely to be largely steady around 100,000 yuan ($13,800) per mt in the first half of the second quarter even though participants do not discount the possibility of levels softening amid the prevailing oversupply, while demand is expected to remain range-bound well into Q2 after a modest uptick in mid-March. The trajectory of prices beyond April, however, will hinge to a large extent on whether downstream demand picks up enough to curb downward pressure from oversupply," the report added.

For Tata Motors, the biggest hurdle for EV demand now is the slow development of charging infrastructure. “It is normal for any developing market to hold on to stability for a bit and then work on what’s stopping adoption, clear the pathway, and start acting again," Balaji said.

Also read: Hybrid cars are winning as range anxiety grips EVs

New EV models on way

“We don’t have a growth crisis. We are looking at how to step up penetration of EVs. This year, we have 14 models and a 73% share of the market. More launches and more models are only going to lead to greater disruption in the market," he added.

Automakers including Tata Motors, Mahindra & Mahindra, Maruti Suzuki and Hyundai are gearing up to launch as many as eight new EV models in 2024, and with lithium prices seemingly stabilizing, the fence-sitters may start buying EVs again.

In March, the government unveiled a new EV policy that would provide incentives for foreign EV makers like Tesla and Vinfast. They can import up to 8,000 EVs priced $35,000 or higher every year at a lower import duty of 15%, from 70% earlier, if they commit to investing at least $500 million in India over the next three years. They will also need to comply with rules on local value addition.

Meanwhile, EV makers are still positive about the EV segment. On Thursday, Mahindra said it will invest ₹12,000 crore in in its EV unit over the next three years, close to its ₹14,000 crore planned for petrol and diesel-powered vehicles.