Let’s Make India The Recycling Hub Of The World: Rajat Verma

As India takes slow and steady steps towards e-mobility, the big opportunity you won’t hear about is recycling of batteries. Especially critical considering the high cost of Lithium-Ion batteries, and the sourcing risk for raw materials. Enter Rajat Verma, Founder at Lohum Cleantech. The firm is into manufacturing of 1st and 2nd life battery packs for low-power mobility applications, besides recovering critical battery materials through extraction at the end-of-life. The potential to perform full stack li-ion battery recycling technology to recover cathode & anode raw materials is what makes Lohum a key driver of growth in the Indian EV eco-system.

The firm claims an impressive start, with clients including a government organization into manufacturing of tricycles for the differently abled, an e-bike rental service provider in Bengaluru and a leading e-vehicle manufacturer of Two Wheelers among others. Verma, a serial entrepreneur with over 18 years of experience in start-ups and in technology investing internationally has previously worked with companies that specialize in enterprise software & e-waste management. An Alumnus of Indian Institute of Technology (Kanpur), he did his MS at Stanford & MBA from Harvard Business School. We spoke to him to bring you an entrepreneurs view on the opportunities in electric mobility.

Q. Why lithium. Why did you start with this business?

So I had been an investor and an operator in the electronic waste management space for the last almost 12 years and got a very good perspective on recycling associated with various kinds of electronics. In 2015- 2016 I started seeing lithum-ion batteries coming into the mainstream and creating e-waste, the battery space in particular. From an initial focus on recycling, we extended our thoughts to the larger problems associated with the entire battery life cycle in India, right from first life to second life to end of life problems associated with them. So that was basically the Genesis of Lohum.

Q. When we say lithium ion battery space, what does it include?

In a very generic sense of the word, yes. But broadly, it includes Lithium-Ion, lithium polymer, Lithium Ferro phosphate, all kinds of variants of lithium cathode chemistry In the telecom sector today, we are producing almost 20,000 tons of lithium-ion battery waste every year. If handled right, (recycled ), that has the potential to do a lot for the lithium-ion ecosystem in the country.

Q. How big can the recycling sector become?

We are still in very early days of the recycling value chain. In the lithium-ion industry today China is the largest user. Because they put it into their buses and their early electric vehicles way back in 2010. The US is playing catch up. Those early first life batteries are largely making their way to the second life battery space now. When it comes to recycling all the chemicals, very few companies globally right now have the expertise to recycle all the chemicals. Not just lithium, but also some of the other critical materials such as nickel, manganese, cobalt, which are much more difficult to separate from each other. Our goal is that just like in the base metal market, for example, aluminum ,iron, copper, and in the precious metal markets, such as gold and silver, where almost 50% of the produced material is recycled material the Lithium ion market and associated metals should also see a similar level of recycling.

Q. How do you source your raw materials for production?

One of the beautiful things about India is a highly efficient recycling and sourcing market. Kabariwala’s and other specialised aggregators have their presence, both in the formal and informal supply chain. It is these set of aggregators who aggregate the batteries for us and provid them to us. We also work directly with organized recyclers, organized waste recyclers, and we also work directly with some of the organised OEM’s in the market who have large bulk consumers in the market who want to dispose of batteries. We are also developing relationships internationally, particularly in the US and China.

Q. What does the law in India expect, when it comes to recycling of lithium- ion batteries?

In India, we’ ve got a bunch of different laws associated with electronic waste in general, but in particular lithium ion battery. When it is part of consumer electronics, it falls under the electronic waste management rules, but where the battery is used in automotive solutions, there are no rules yet. We just have what are known as lead acid battery management rules. As of February, 2020, the government ‘s pollution control board, came out with a draft set of notifications for generic battery waste management, which included both lead acid and lithium ion. And right now the notifications are available for public commentary. We expect these notifications, to get formally notified in the next couple of months, maybe three months. The new rules will essentially place the onus from cradle to grave on the producer or importer of the battery.

Q. Where are your current batteries under production being used?

We work very closely with the two wheeler and the three wheeler segment. The three Wheeler segment in India is actually one of the most voluminous segment, though largely unorganised. That remains attractive for us too.

Q. A recent report claims that the two wheeler market will grow from 150,000 in 2019 to 2 million strong by 2025. That should attract a lot of firms. How do you see that impacting your own growth and plans?

At this stage, if we look at the market, by and large, the same three or four players who have created what could be known as credible, warranty-able, and serviceable batteries in the market, even though you’ll find a lot of smaller players who are putting together some solutions . We expect the market to consolidate around the larger players eventually. Our differentiator is that we are we are the (only) ones providing a full life cycle solution, which includes a second life and an end of life solution, which is not being provided by anyone.

So today actually both the OEM, as well as other battery manufacturers are both our customers. So we treat the entire market as our customer base, and we may be provisioning different parts of our complete solution to different players. We certainly look forward to a strong play in the second life and the recycling market where can aim for a significant market share . With one of the most economical solutions in the market compared to anyone else, we believe it’s a real opportunity for us.

Q. So cost and rarity of compoments makes a case for recycling in Lithium-Ion batteries. Do they all perform similarly?

Typically most manufacturers will not give more than a 1000 cycle warranty on the battery pack. As assuming a battery being cycled (charged) each day broadly, that’s a 3-4 year time period. In more sophisticated use cases where you will have advanced cooling systems to manage battery life, the life could go up to 6-7 years. Remember, India has very high temperature conditions, which are terrible for any kind of battery.

Q. We have seen an emerging trend where mobility firms are effectively giving the batteries on lease. How do you see that trend playing out?

That’s a very critical point and secondly if you look at the financing ecosystem, it has just started making its inroads into the electric vehicle ecosystem in the country. As we know, the Indian automotive industry largely works on finance. Electric vehicle’s too need financing . The critical questions that every financier will ask is what is the salvage value of the vehicle? And then if you have to address that question, you have to address the question of salvage value of the lithium ion battery, since the battery is such a key cost item in the vehicle. That is where we come into play. We expect to help financiers understand the salvage value of the battery based on number of cycles etc.

Q. What is your current manufacturing capacity for batteries? And production capacity for extraction? Revenues potential from batteries and extraction business?

We can produce approximately 10,000 battery packs of varying configurations per annum. And we have the ability to recycle close to 500 tons per annum (TPA)of end of life packs to produce chemicals from them you know at our set up in Greater Noida , Delhi NCR region.

We are targeting a revenue of approximately 35 crores this year, although technically with a 10,000 battery pack capacity, you have the ability to generate revenues of close to Rs 200 odd crores at current prices.

A thousand TPA extraction business, is potentially $ 6 million of revenues. We have a 500 TPA capacity so that’s approximately 3 million potential. The big difference between the two businesses, of course, is the technology. If we’ve got the ability to extract all the materials, the profit potential is much, much higher in the extraction business when compared to battery packs

Q. The metals you extract, are those used in batteries again?

No, today we don’t put it back into a cell, because India doesn’t have a cell manufacturing capacity for what we do. I mean, lithium, Cobalt and Nickel have lots of use cases outside of the cell manufacturing industry. And all three today are commodities listed on the London metals exchange. So we trade them like any other commodity with the larger community in India. We’ve got key use cases around micronutrients, around lubrication, around electroplating, et cetera, associated with these chemicals. We are now working with some of the early starters in the manufacturing space in India. As you know India has announced a 50 GWh cell manufacturing capacity. Some of the leading players in the country, including the likes of Tata’s, Exide, TVS have announced the intention to put up cell manufacturing capacity . We are working with all of them in seeing how we can fit into that larger ecosystem.

Q. So you don’t see yourself as a part of that 50 GW number in terms of turning into a full fledged, greenfield manufacturer?

I don’t think we want to get into the cell manufacturing business. Our expertise remains around extracting the raw materials and then putting the cells into useful applications Cell manufacturing capacity now in our observation is a very high capex business and best left to extremely large and established players in the market.

Q. As an insider, how do you see India’s manufacturing plans unfolding in the future?

We always believe more can be done on the policy side. We always believe the government can move faster. I think that that’s a truism for not just India in particular but the world in general . India has shown a positive mindset when it comes to thinking about this space , the nuances of this space. It is very encouraging that key institutions in the country, whether it is BIS, BSP, whether it is CPCB, Niti Aayog, they are all thinking through recycling related policies. Even though the primary market for lithium ion battery, is still fairly nascent. After a long time we are thinking very holistically about an industry. India is certainly looking at EVs as probably sunrise sectors or the country over the next few years, which will probably generate a lot of jobs for the country.

Q. OK, beyond mobility, what about using Lithium ion batteries for storage solutions? In Renewable energy, for instance?

Globally, the prevailing mindset is that second life battery is best used for storage. It makes sense, but in India, what we’ve proven is that second life batteries can go and perform well in mobility applications as well. That is where we have truly differentiated ourselves. That is partly due to a very unique situation here. We can see low power vehicles functioning, coexisting with high powered vehicles in the country and these low power vehicles lend themselves very well to second life batteries. The storage case for these batteries is because they can afford to charge and discharge at low current rates. But the India market actually provides a lot of similar mobility applications.

So we’ve decided to focus on mobility, but storage is certainly there at the back of our mind. We have created a bunch of storage prototypes particularly integrating batteries with home inverter. But our focus remains mobility. As we demonstrate that the technology can actually go into what are known as low speed and low power electric vehicles in India, it has potential in Africa, Southeast Asia and other developing parts of South America.

Q. A huge segment of the three wheeler, two wheeler market for EV’s market is still running on lead acid batteries. How quickly do you see this market changing?

So the lead acid battery for an e-rickshaw probably costs about Rs 25,000. A Li-ion pack imported from China will probably cost about Rs 65,000 rupees.

We, with our second life solution stand at Rs 45,000 rupees, while we with our first life solution stand at Rs 55,000 So remember, we’ve already bridged that gap of 40,000 rupees substantially down to 20,000 rupees. Now, if you look at the total cost of ownership lead acid battery arguably goes bad every six months. While a lithium ion battery over a three year time period will have ownership costs of Rs 70,000 . So that’s the total cost of ownership argument. How do we remove that upfront cost parity? The classic solution is financing, and the additional impetus is FAME 2. So Fame 2 is providing a 10,000 rupee /Kwh subsidy for Lithium ion batteries. That’s almost Rs 40,000 for the lithium ion battery.

That means our battery, which was costing about 55,000 rupees comes down to 15,000 rupees, right? The government has earmarked Fame 2 for 500,000 e-rickshaws at this stage. A fairly substantial number to be deployed over the next two and a half years. We have started seeing evidence of deployment of FAME 2 from January this year. We saw a lot of our automotive, a lot of our three wheeler OEM customers wanting to do FAME 2 registration. So all the good early indications are there. I do believe we are at the tipping point and over the next year you can never predict how quickly things change. We are more than hopeful that things will change very, very quickly, largely because both financiers and FAME 2 seems to have come into effect.

Q. How do you feel about the battery swapping model being tried for Li-Ion batteries?

I’m not sure if it is necessarily useful for every use case out there. Remember with your single battery, you can get an almost an 80 kilometers range, right? And the average guy from the numbers that have been published out in various surveys doesn’t do more than more than 30 kilometers a day. Most people can charge these batteries at their home quite conveniently. Of course , there are certain other use cases where the vehicle utilization is probably important. That is where swapping becomes a critical solution. When you start thinking of B2B solutions like delivery firms, they’re the ones who really need a swapping solution to ensure the utilization of the vehicle stands at 70-80% of its potential.

Q. From a marketing perspective, do you see scope for brand building in your segment?

I think there’s a huge scope for branding because at the end of the day, you’re providing a product with a three to five year warranty. Where there is a warranty, the market, people, seek brands because they know that you’ve got to service the warranty. That means a countrywide network. The moment you start building a Countrywide network, you start creating a brand. As part of our strategy, we certainly have a plan to build brand equity as one of the key pillars of our own growth strategy.

Q. How do you see the price for lithium batteries evolving over the next five years?

Because we hear lots of number from various experts. There is a definite price pressure on the cell, and that downward price pressure on the cell translates to downward price pressure on per kwh at the battery pack level. 70 to 80% of the downward price pressure is largely because of scale, not because the raw material itself is becoming cheaper. But we don’t expect cell prices to fall below, let’s say approximately $70 a kilowatt hour, which means battery packs will probably not fall below $90 a kilowatt hour, in two to three years. Those are excellent prices. If you start measuring them against traditional sources of energy they will look very economical.

In the next two years, I do expect us to reach a hundred dollars a kilowatt hour

Q. How big is the presence of China when it comes to lithium ion batteries, whether as a source of raw materials, scale manufacturing of cells?

How can a market like India hedge against it? China has got a huge presence at every step of the supply chain. That means presence in Indonesia, presence in Chile or presence in Congo, where some of the key metals are mined. It goes without saying cell manufacturing is largely an industry centered in China. If oil is an oligopoly, lithium ion batteries is almost a Chinese monopoly. It’s not a good place to be in for other markets. We believe we can have a lot of control in the downstream chemical processes. I go back to the earlier statement, about aluminium, copper, gold, silver, iron where 50% of the material produced out there is recycled. So India can get its recycling narrative right. The theme that I like to communicate to everyone else is let’s make India the recycling hub of the world. There are solid reasons why we can be the hub of the world today. Today in 2020, we can source almost 40 gigawatt hours of battery material from the world. It’s a huge number, and a huge opportunity for us to shift the narrative from China in the business, if we do this right.