India lures EV makers with import duty cuts, paves way for Tesla’s entry

  • Move to nudge global EV makers to manufacture in India

Alisha Sachdev
Updated15 Mar 2024
Companies setting up manufacturing facilities for EVs to be
allowed limited imports of cars at lower custom duty under the new EV policy approved by the union government.
Companies setting up manufacturing facilities for EVs to be allowed limited imports of cars at lower custom duty under the new EV policy approved by the union government.(Bloomberg)

India on Friday unveiled a new electric vehicle policy that would provide foreign EV makers like US-based Tesla & Vietnamese carmaker Vinfast with incentives to enter India's nascent electric car market.

In a gazette notification, the Centre said it would will allow automakers to import up to 8,000 EVs priced $35,000 or higher every year at a reduced import duty of 15%, from 70% earlier, if they commit to investing at least $500 million in India over the next three years.

They will also have to begin local manufacturing operations and ensure 50% domestic value addition (DVA) in the vehicles manufactured here by the end of that period, increasing it to 50% at the end of the five years. The scheme will be administered by the ministry of heavy industries (MHI).

Mint was the first to report last November that plans were afoot to introduce a policy for EV makers wanting to enter India, for vehicles in the range of $25,000-$35,000.

However, local OEMs Tata Motors & Mahindra & Mahindra have since lobbied with the government to raise the price threshold higher to $35,000 and above, to protect their investments and competitiveness.

Both OEMs have aggressive plans to launch ground-up premium EVs in India in the same price bracket, people aware of the matter said.

While Tesla was negotiating for the duty reduction to be available for an affordable $25,000 EV that it is planning to develop for markets like India, it will now likely to bring its Model 3, which sells at close to $40,000 globally, to India and work towards localizing its operations to kickstart its India entry plans, the people cited above added on condition of anonymity.

The move is being seen as a nifty balancing act by the government just a day before the expected announcement of the model code of conduct for the upcoming general elections, positioning India as a destination open for business while managing to not alienate the domestic industry.

The government will also seek bank guarantees equalling the reduction in import duty on the vehicles from the carmakers, and will only return them if they meet all the criteria laid down under the scheme in five years.

“The move seems primed for Tesla's entry to India. The Model 3 and Model Y are priced above $35,000 and will finally give the company access to the Indian market, in a culmination of its now years-long efforts to lobby for lower duties," a senior EV industry executive, who did not want to be named, said.

“Vinfast, however, will have to identify the right model to bring to India as it has models in its global portfolio that are below the $35,000 price point or then in the luxury range, which might not be viable for a dealer distribution network in India," he added.

Other people aware of the government’s plans said that the scheme will not be applicable to existing OEMs like Hyundai, Kia, BYD or MG Motor India, or European OEMs Mercedes Benz and BMW, unless they make a fresh investment of at least $500 million in the next three years, in assembly operations, or setting up a battery or cell manufacturing facility or in establishing charging infrastructure.

Detailed guidelines for the scheme are yet to be released. The company applying to be eligible under the scheme will also have to meet a minimum global turnover requirement.

"Domestic automakers won't be adversely impacted because of the high price point cut-off. At a maximum cap of 8,000 cars a year, only early adopters and affluent buyers will buy these cars. Even with the reduced subsidy, a $35,000 EV will cost somewhere north of 40 lakh at the retail level, where the market is anyway extremely small," another senior executive said on condition of anonymity.

“However, the move is going to send a strong signal of confidence down the entire ecosystem, and the entry of an OEM like Tesla will also bring greater competitiveness in the industry,” he added.

A spokesperson for Mahindra & Mahindra said: "The recently announced EV policy for new entrants reinforces the Make in India momentum, with requirements of bank guarantees, minimum investment commitment and local value addition. This will help accelerate the EV ecosystem in India. Our Born Electric SUVs are on track to be launched in Jan 2025 with cutting-edge technology. Our products will speak for themselves."

On the new EV passenger vehicle manufacturing scheme, Vinod Aggarwal, president, SIAM said: “A holistic view has been taken by the Government in best interest of the country. The Indian Automobile Industry and members of SIAM will adapt to this new policy and remain committed to bring new, innovative & aspirational products and work towards developing a robust EV Eco system in India.”

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