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Plans for India’s first lithium refinery are forging ahead after Neometals Ltd. and Manikaran Power Ltd approved a feasibility study for a project that aims to supply a nation set to become the fourth-largest electric-vehicle market by 2040.

The refinery will have a proposed capacity of 20,000 tons a year of lithium hydroxide, Australia’s Neometals said Thursday in a statement. The study will support staged investment decisions for a potential 50:50 joint venture to develop the project.

India’s ambition of becoming a global hub for making EVs faces challenges from a lack of access to raw materials, such as lithium, needed to produce batteries. The proposed project by Neometals and Manikaran is part of a nascent drive by the nation to build battery factories and secure supplies for the burgeoning EV industry.

The project would also be timed to hit a supply crunch in the lithium sector from the middle of the decade as demand from battery producers builds, Neometals Chief Executive Officer Chris Reed said in the statement. Disruptions related to the coronavirus pandemic have also illustrated the importance of developing domestic supply chains, including in India, he said.

Passenger EV sales in India are expected to rise to 2.6 million vehicles in 2040, from about 3,000 in 2018, BloombergNEF said last year. In 2040, the fleet of electric passenger and commercial freight vehicles in India will displace 360,000 barrels of fuel demand every day.

As electric vehicle adoption grows the world over, lithium demand from batteries — an essential component of vehicles — will double every five years to reach 1.6 million tons of lithium carbonate equivalent by 2030, according to a report last month by BloombergNEF.

(By Sybilla Gross)