EV policy can recharge competition in auto sector

Kotak Institutional Equities estimates the landed cost of a Tesla at  ₹42-74 lakh, depending on the model, after adjusting for the revised duty structure. Photo: AP
Kotak Institutional Equities estimates the landed cost of a Tesla at 42-74 lakh, depending on the model, after adjusting for the revised duty structure. Photo: AP

Summary

  • While the policy opens the door for companies such as Tesla and Vinfast, competition will escalate only once manufacturing starts in India.

The government’s move to promote India as a manufacturing hub for electric vehicles (EVs) comes at the right time, with the automobile industry already looking to shift towards electrification. The EV policy for passenger vehicles is designed to draw investments by global automakers. If it plays out as expected, it will accelerate EV adoption in India. For perspective, the share of EVs in the passenger vehicle segment stood at less than 2% in February, according to Vahan.

The minimum investment required under the scheme is 4,150 crore and manufacturing should commence within three years of receiving approval. Besides strengthening the EV ecosystem, the policy could also boost the Make in India initiative as it mandates domestic value-addition of 25% by the third year and 50% by the fifth. Elara Securities (India) notes that India could become an export hub in the future, given that global automakers are looking to diversify beyond China.

As such, the policy opens the door for companies such as Tesla and Vinfast, a Vietnamese automaker. While this will increase the number of companies in the domestic market, competition will intensify only when manufacturing starts in India. The scheme allows global automakers to import a maximum of 8,000 units a year at a subsidised customs duty rate, subject to conditions. But this will hardly have a big effect on domestic companies such as Tata Motors Ltd and Mahindra & Mahindra Ltd.

Also, Tesla has much higher price points. For instance, Kotak Institutional Equities estimates the landed cost of a Tesla at 42-74 lakh, depending on the model, after adjusting for the revised duty structure. The ex-showroom price of a Tata Nexon (the company’s most expensive model) is about 20 lakh.

However, Tesla plans to launch a mass-market EV, codenamed Redwood, by mid-2025. It’s expected to be priced at $25,000 (about 21 lakh) in global markets. “At this price point, we believe the product will create strong customer pull, given the company’s brand equity, superior product performance and its prowess in battery technology," read the Kotak report dated 15 March.

Meanwhile, auto ancillary companies such as Sona BLW Precision Forgings Ltd and Samvardhana Motherson International Ltd, which supply global EV makers, stand to gain. In the near term, domestic automakers don’t face any significant market-share risks. But if Tesla or other global automakers decide to enter India thanks to this policy, domestic companies will have to step up their game.

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