In March 2024, the Union Government
approved a scheme to promote India as a manufacturing destination so
that e-vehicles (EV) with the latest technology can be manufactured in
the country. The policy is designed to attract investments in the
e-vehicle space by reputed global EV manufacturers.
The policy
will provide Indian consumers with access to latest technology, boost
the Make in India initiative, strengthen the EV ecosystem by promoting
healthy competition among EV players leading to high volume of
production, economies of scale, lower cost of production, reduce imports
of crude oil, lower trade deficit, reduce air pollution (particularly
in cities), and will have a positive impact on health and environment.
The policy entails the following: -
• Minimum investment required: Rs 4150 Cr (∼USD 500 Mn)
• No limit on maximum investment
•
Timeline for manufacturing: 3 years for setting up manufacturing
facilities in India, and to start commercial production of EVs, and
reach 50% domestic value addition (DVA) within 5 years at the maximum.
• DVA during manufacturing: A localization level of 25% by the 3rd year and 50% by the 5th year will have to be achieved.
•
The customs duty of 15% (as applicable to CKD units) would be
applicable on vehicle of minimum CIF value of USD 35,000 and above for a
total period of 5 years subject to the manufacturer setting up
manufacturing facilities in India within a 3-year period.
• The
duty foregone on the total number of EV allowed for import would be
limited to the investment made or ₹6484 Cr (equal to incentive under PLI
scheme) whichever is lower. A maximum import of 40,000 EVs at the rate
of not more than 8,000 per year would be permissible if the investment
is of USD 800 Mn or more. The carryover of unutilized annual import
limits would be permitted.
• The investment commitment made by the
company will have to be backed up by a bank guarantee in lieu of the
custom duty forgone
• The Bank guarantee will be invoked in case
of non-achievement of DVA and minimum investment criteria defined under
the scheme guidelines
A little over a month later, clarifications
on how the new EV policy will operate were released as Vietnam auto
manufacturer VinFast appeared to have misunderstood details of the
policy roll-out.
Clarifications issued by the government to VinFast
1.
Investment requirement: The policy mandates that a company must invest
US$500 million within the first three years of operation. This
investment should result in vehicles rolling out of the plant with a 25
percent DVA.
2. Timeline for investment counting: Investments made
in a new plant, such as the one in Thoothukudi, are counted only after
240 days from the start of construction. The initial 120 days constitute
the application window, followed by another 120 days for evaluation and
confirmation by the Ministry. After receiving confirmation, the
investment cycle begins, meaning the actual investment recognition
starts only after eight months.
3. Consequences of non-compliance:
If the US$500 million investment is not completed within the specified
three-year period, the company will not be eligible for the bank
guarantee mentioned in the policy.
Following the clarification of
these details to VinFast, concerns have arisen that the company may
postpone its operations in India and temporarily suspend its Tamil Nadu
plant construction.
What India hopes to achieve with this policy
The
EV Policy offering is in line with India’s ambitious goal of targeting
30% of new vehicle sales to be electric by 2030. Despite electric cars
representing only 1.3% of total car sales in 2022, the Indian government
is keen to push for EV production.
For a long time now, India
has sought to attract investments from leading automotive companies like
Tesla to establish their presence in India and anchor the high-tech
development of the industry’s domestic ecosystem. Given the slowdown in
the EV market in other key regions such as the US and Europe, and
geopolitical tensions around China, India offers an attractive base for
global firms to expand their operations and diversify their market
reach.
The new EV Policy seeks to convince reluctant or undecided
global car manufacturers into entering the Indian market. Tesla is
facing challenges due to its lack of entry-level vehicles and aging
product lineup, leading to declining demand and increased competition
from rivals like China’s BYD.
Concerns expressed by industry stakeholders
The
new EV Policy has raised concerns among auto companies about fairness
in India’s automotive industry. They worry that special import duty
rates, offered only to new entrants, may disadvantage existing players.
Luxury auto giants like BMW, Volkswagen, and Mercedes-Benz are also
deliberating their stance on the issue – instead of tapping into lower
tariffs, they may consider directly investing in local assembly
capacity. Meanwhile, S.Korean companies like Hyundai and Kia, along with
some Indian manufacturers, advocate for recognizing their early /
cumulative investments in the EV space when issuing approvals for lower
tariff imports.
Domestic industry players are also worried about
an influx of Chinese car firms who are among global market leaders. This
is more so as Chinese auto imports to Western markets like the EU and
US have slowed down due to anti-subsidy investigations. India already
imports US$20.3 billion worth of auto components, 30% of which comes
from China. To assuage these concerns, the new EV Policy has put in
import quotas for the lower tariff and linked its access to time-bound
local investments.
Other schemes to support EVs
Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME): The
FAME scheme was launched in April 2015 under the National Electric
Mobility Mission, to encourage electric and hybrid vehicle purchase by
providing financial support. It aimed to reduce vehicular emissions and
promote consumer purchase. Its first phase ran for four years until
2019.
The second phase (FAME II) was a 3-year subsidy programme,
which ran until March 2024. It aimed at supporting the electrification
of public and shared transportation: around 7,000 electric and hybrid
buses, 500,000 lakh electric three wheelers, 55,000 electric four
wheeler passenger cars, and 1 million electric two wheelers. The
programme also financed charging infrastructures. Until July 2022, a
total of 532 charging stations have been installed. FAME III is expected
soon.
Additionally, the state governments of Tamil Nadu,
Telangana, Gujarat, Maharashtra, Haryana, Rajasthan, Chhattisgarh,
Odisha, and more have devised their own separate EV policies to bolster
the purchase and local production of electric vehicles.
Furthermore,
the Production Linked Incentive (PLI) Scheme for the automotive sector,
launched in September 2021 with a budget of US$3.1 billion, aims to
boost domestic production of advanced automotive technology (AAT)
products.
Another PLI Scheme, targeting the National Program on
Advanced Chemistry Cell (ACC) Battery Storage, was also launched in 2021
with a budget of US$2.1 billion over seven years to enhance ACC battery
production capabilities in India.
Electric Mobility Promotion Scheme (EMPS) 2024: The
Indian government introduced the EMPS 2024 to promote the purchase of
electric two-wheelers (e2W) and three-wheelers (e3W). With a budget of
Rs 5 billion, it will replace the FAME-2 scheme and will be effective
from April to July 2024, with the possibility of being replaced or
extended thereafter.
The main goal is to increase the adoption
of e2Ws and e3Ws while gradually reducing industry reliance on
subsidies. The subsidy is now reduced to Rs 5,000 per kilowatt-hour of
battery capacity, down from Rs 10,000, and capped at Rs 10,000 per e-2W,
which is a reduction of 15% from the price under FAME-II and is
expected to cover 3,33,387 e2Ws. The scheme does not cover electric
four-wheelers (e4Ws) and e-buses.
Phased Manufacturing Programme (PMP):
The Ministry of Heavy Industries has introduced a PMP to promote
indigenous manufacturing of Electric Vehicles and their components over
time. A graded duty structure is envisioned to incentivise local
manufacturing.
National Mission on Transformative Mobility and Storage:
The aim of the mission is to drive strategies for transformative
mobility and Phased Manufacturing Programmes for electric vehicles,
electric vehicle Components and Batteries.
These collective initiatives aim to accelerate EV adoption in India.
(Compiled from various sources)
