How battery warranty plans contribute to building a circular economy

Insurers today are standing out by offering battery performance warranties which facilitate battery replacement in case of degradation beyond the limit of optimal vehicle performance.

By Mayank Gupta, VP - Auto, ACKO calendar 05 Jun 2024 Views icon1759 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
How battery warranty plans contribute to building a circular economy

India's Electric Vehicle (EV) revolution is propelled by ambitious initiatives like the National Electric Mobility Policy 2025, fuelling the Government's commitment to achieving complete electric mobility by 2030.

The government has taken measures such as FAME, EESL and PLI to increase the demand and subsidise the EVs, and also set up BWMR norms to ensure proper disposal of batteries. Despite progress, challenges such as range anxiety, high upfront costs, and lack of charging infra, hinder customer adoption, which in turn prevents the circular economy of EVs from reaching full potential, as per the findings from our in-house EV Index Report.

To overcome the barriers, EV offerings must expand beyond their conventional scope to address battery waste management, and indigenous supply chain, and facilitate access to advanced aftermarket services. Extended Battery Warranty plan is one such offering by insurers that emerges as a critical solution in optimising EV battery utilisation thereby fostering a circular economy.

Extended Battery Warranty plans promoting EV adoption

Extended Battery Warranty plans offered by insurers extend the government mandated manufacturer warranties. Insurers today are standing out by offering battery performance warranties which facilitate battery replacement in case of degradation beyond the limit of optimal vehicle performance. For instance, warranties can be extended from three years, to five to seven years for a 2W battery, and from eight years to 10-12 years for cars.

By instilling confidence in customers that an EV outlasts an ICE vehicle, the battery warranty plans play a pivotal role in promoting EV adoption. Additionally, it supports the total cost of ownership of the vehicle by spreading out financing costs over an extended period.

Fostering Business Models and Enhancing Customer Experience

The increasing popularity of battery warranty plans nurtures innovation in business models such as the ‘pay-per-use’ for batteries. Real-time data that can be accessed from connected EVs enables to keep a track of battery usage and hence leverage this data to create usage-based payment models. This will also help in delinking battery costs from vehicle prices and enhancing savings visibility. This addresses customer inertia and promotes widespread EV adoption.

Bolstering Aftermarket Services

Determining the level of degradation of an electric vehicle battery when it is sold for a second time has always been a challenge. Battery warranties tackle this problem by bolstering confidence in the EV aftermarket sector, particularly for second-hand buyers. With batteries constituting a significant portion of EV costs, warranty extensions ensure transparency regarding battery performance and lifespan, facilitating smoother transactions in the second-hand market.

Aiding the Booming Circular Economy

The performance of an EV vehicle battery degrades over time due to its chemical properties. Once the battery health is below a certain threshold, the performance level is no longer sufficient to power a high-mobility vehicle. The degradation process becomes non-linear if one continues to use the degraded battery in a vehicle, leading to battery failure before extracting the full potential through secondary use-cases. These sub-par batteries can be utilised for less demanding purposes such as low-mobility e-rickshaws, energy storage for renewable sources, or providing backup for data centers. Battery warranty plans facilitate this by incentivising the replacement of sub-par batteries for better ones, hence, promoting a circular economy. 

Nurturing a Holistic Ecosystem

Battery warranty plans nurture a holistic ecosystem by providing stakeholders that operate in EV aftermarkets with visibility through data-driven approach. Technical insights into battery degradation enable effective planning for second and third-life applications. Collaboration among stakeholders such as OEMs, distributors, insurance companies, reinsurer partners, customers, second life partners, recycling partners and battery manufacturers - ensures clear communication of value proposition, execution of SOPs, data collection, modeling, and monitoring.
In conclusion, battery warranty plans offered by insurers play a pivotal role in promoting optimal battery utilisation throughout its lifecycle, thereby driving value creation for stakeholders. By reducing costs at each stage, these plans facilitate the creation of an ecosystem that ensures clear value for all participants, supporting the growth of a vibrant circular economy in the electric vehicle industry.

Mayank Gupta is Vice President, - Auto, ACKO. Views are of the author.

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