With the accelerated growth of the electric vehicle (EV) industry, the Indian government has recently approved a policy aimed at attracting large-scale investments from global EV manufacturers. This move is expected to position India as a prominent player in the EV manufacturing hub, while also providing an impetus for the entry of major global players like Tesla, Vanifest, and other major EV manufacturers into the Indian market. With air pollution and fossil fuel dependency being significant challenges in the country, the e-vehicle policy is a step in the right direction.
In brief, the Indian government is ready to offer tax deductions (import tax) on certain “EV” vehicles for the manufacturers that promise to invest at least 450 crore ($500 million) investment and install domestic EV manufacturing facilities in India.
To take advantage of the latest “Electric Vehicle Policy”, any global “EV-makers” must meet the following clauses.
- A minimum investment of $500 million with no upper limit.
- A maximum three-year timeline for establishing manufacturing facilities and starting commercial production of EVs in India.
- Attaining a 50% “DVA” (domestic value addition) within five years of starting operations.
- A 25% localization level by the third year.
- Vehicles of a minimum CIF value of $35,000 (Rs 29 lakh) will be charged a 15% customs duty (as applicable to CKD units) for five years.
- The customs duty foregone on the total number of EVs permitted for import would be limited to the investment made or Rs 6,484 crore (equal to incentive under the PLI scheme) whichever is lower. A maximum of 40,000 EVs at the rate of not more than 8,000 per year would be permissible if the investment is $800 million (Rs 6,664 crore) or more. The “carryover” of unutilized “yearly” import limits would be allowed by this policy.
- A Bank guarantee is needed for the investment commitment made by the company.
- The bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines.
The Indian government views the new EV policy as a means of achieving multiple objectives. It aims to attract global EV majors to India, encourage local manufacturing, and promote the adoption of EVs among Indian consumers. The policy also seeks to create a competitive framework that promotes the growth of both domestic and international manufacturers in the Indian EV market. Tesla, the American EV giant, has been keen on entering the Indian market for quite some time. Apart from Tesla, other global EV manufacturers are also eyeing the Indian market. For instance, VinFast, Vietnam’s largest car manufacturer, has expressed interest in setting up an EV plant in India. However, the high import duties on EVs have been a major roadblock. With the new EV policy offering duty concessions, Tesla’s entry into the Indian market seems imminent. This could result in Indian consumers gaining access to Tesla’s cutting-edge EV technology. With the new EV policy offering attractive incentives, it is likely that many more global players like “Tesla” and “VinFast” will consider entering the Indian EV market.
While the new policy is expected to attract global players, it also aims to protect the interests of Indian automakers. The government has set stringent localization requirements to ensure that domestic manufacturers are not left out in the cold. Moreover, the limited number of imports allowed under the policy means that the market share of domestic manufacturers will not be significantly impacted.
The Indian EV market is pretty much lucrative for foreign investors. According to industry estimates, the total EV sales in India are expected to grow from around 10 lakh units in 2022 to one crore units by 2030. This growth is expected to create five crore direct and indirect jobs, further boosting the Indian economy.
Government’s concerns: Few hurdles to overcome
While the new EV policy presents numerous opportunities, it also poses certain challenges. For instance, setting up manufacturing facilities within a three-year timeframe could be a daunting task for global manufacturers. Moreover, achieving the stipulated levels of localization could also be challenging. Limited charging-infrastructure is one of the primary challenges, many experts says. Currently, the availability of charging stations is quite limited, especially in tier-2 and tier-3 cities. The government needs to invest in the development of a robust charging network to alleviate range anxiety concerns and encourage more people to switch to electric vehicles.
Another hurdle is the high initial cost of electric vehicles compared to petrol/diesel-driven cars. Despite the financial incentives provided by the e-vehicle policy, the upfront cost of electric vehicles is still higher compared to conventional vehicles. This affordability gap needs to be bridged through innovative financing options and increased economies of scale in production. Additionally, the availability of raw materials for battery manufacturing is a concern. India heavily depends upon imports of lithium-ion batteries, being one of the main reasons for high upfront cost of electric vehicle. To overcome this challenge, the government needs to incentivize domestic battery manufacturing and promote research and development in alternative battery technologies.
Government’s Initiative to address the challenges:
However, these challenges also present opportunities for global manufacturers to collaborate with local companies and leverage their capabilities. To solve the limited charging infrastructures, the government is actively working towards the development of a robust charging infrastructure across the country. The National Electric Mobility Mission Plan aims to set up charging stations at regular intervals along highways, in cities, and public places. In our previous article, we discussed the government’s new EMPS-Scheme-2024 to mitigate the “high-initial” cost of EV vehicles, a pretty much positive step.
Future Prospects and Growth of the E-Vehicle Market in India
The approval of India’s e-vehicle policy sets the stage for the future growth of the electric vehicle market in the country. With the incentives and support provided by the government, the adoption of electric vehicles is expected to witness a significant surge in the coming years.
India, with its large population and increasing environmental awareness, presents a massive market for electric vehicles. The policy’s focus on two-wheelers and three-wheelers, which constitute a significant portion of the Indian automobile market, will further accelerate the adoption of electric vehicles. The growth potential in these segments, coupled with the increasing demand for electric cars, makes India an attractive destination for electric vehicle manufacturers.
Furthermore, the policy will encourage the development of a strong ecosystem for electric vehicles, including battery manufacturing, charging infrastructure, and research and development. This will not only create employment opportunities but also foster innovation and technological advancements in the Indian automotive sector.
In conclusion, India’s approval of the e-vehicle policy marks a significant milestone in the country’s transition towards a greener and more sustainable future. The policy’s incentives, support, and emphasis on infrastructure development will attract renowned companies like Tesla and other major players in the electric vehicle industry. This move will not only reduce harmful emissions and combat air pollution but also create employment opportunities and contribute to the growth of the electric vehicle industry in India. With the government’s commitment and the potential of the Indian market, the future of electric vehicles in India looks promising.