New Delhi: Just a day before the model code of conduct is likely to kick in, the Union Government has quietly eased imports of electric vehicles (EVs), after multiple denials of coming out with such a policy anytime soon.
The E-Vehicle Policy, a ministry of heavy industries statement said, is being brought to promote India as a manufacturing destination for e-vehicles. A euphemism for bringing in Tesla? Tesla has been among the more vocal and visible foreign EV manufacturers which have lobbied hard for getting import duty concessions to launch their vehicles in India.
The new policy allows import of cars with CIF value of USD 35000 or more at a steep duty cut. Currently, fully built cars attract 100% import duty if their CIF value is over USD 40,000 and 70% for cheaper vehicles. The new policy allows imports at 15% duty — exactly what Tesla had sought for initially, while also promising to invest in setting up a manufacturing plant in India.
Expectations of a significant lowering of import duties for bringing in Tesla have been building up for months, especially since Commerce Minister Piyush Goyal visited the Tesla factory late last year and noted the presence of Indian suppliers in Tesla’s global supply chain. Earlier in 2023, Prime Minister Narendra Modi had met Elon Musk during his visit to the United States.
So the new policy stipulates that foreign vehicle manufacturers can import cars at lower customs duty as long as they set up a manufacturing facility in India within three years. Another stipulation is that such companies should achieve a localisation level of 50% by the fifth year. The statement says that such a policy will “provide Indian consumers access to the latest technology, boost the Make-in-India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to a high volume of production, economies of scale, lower cost of production, reduce imports of crude oil and lowe trade deficit”.
Under the new policy, any foreign EV maker should commit an investment of USD 500 million (INR 4150 crore), show localisation level of 25% within three years and 50% within five years. This will entitle the company to import e-vehicles of CIF value USD 35,000 (about INR 29 lakh) and above at a concessional customs duty rate of 15% for five years. The annual imports of e-vehicles under this policy have been capped at 8000 units.
Also, the total number of EVs which can be imported under the new policy would be determined by “the total duty foregone or investment made, whichever is lower, subject to a maximum of INR 6484 crore”. And lastly, the investment commitment made by each player who agrees to set up a manufacturing facility would have to be backed by a bank guarantee, in lieu of the customs duty foregone.
What’s good
The cap put in place for the total number of vehicles which can be imported in one year should bring relief to the domestic industry, since it allows the local manufacturers a breather in scaling up operations. In Fy24, sales of electric four wheelers would likely remain in the one lakh unit range, so 8000 additional imports of high end EVs should not be a matter of grave concern for Tata Motors, Hyundai, BYD etc. Maruti Suzuki India has, as yet, not commenced production of EVs.
Another plus in the policy is the mandatory commitment being sought from the foreign OEM to set up a facility in India within the stipulated time frame and begin localisation. This would boost the development of the local ecosystem of EV component suppliers and also help OEMs gain scale. And the bank guarantee being sought in lieu of duty foregone is another point in favour of the new policy, since it will further tie down the foreign OEM’s hands.
Hemal Thakkar, Senior Practice Leader and Director at Crisil, told ET Auto, “The policy will lead to a spurt in investments for the auto component industry servicing the EV space. At the same time, the government has ensured that it will be limiting imports of electric four wheelers to 8000 units per annum, which would not lead to a significant dent on the domestic industry. In fact, this will also provide the customers a choice to look at various models at attractive price points beyond the ones present in India currently”.
Local OEMs’ concern
In the run up to the policy being drafted, many local electric vehicle manufacturers had expressed reservations against allowing cheaper imports of fully built EVs. Tata Motors is currently the biggest local EV player, with Nexon, Tiago and Punch. The local OEMs had pleaded their case by citing the investments already made in developing a local ecosystem for EV components and the long road ahead before economies of scale could be achieved, given the substantial difference in the cost of acquisition of EVs versus ICE vehicles. As of now, there could be up to 70% differential in the acquisition cost of an EV versus an ICE vehicle of a similar category. So will the local industry swallow the new policy without a hiccup?
Vietnam’s VinFast has already arrived in India and signed an MoU with the Tamil Nadu government. The two partners will “work towards a total investment of up to USD 2 billion, with an intended commitment of USD 500 million for the first phase of the project, spanning five years from the commencement date”, as per a Vinfast statement. VinFast has noted that India is the world’s third-largest vehicle market and has a “rapidly expanding” EV market.
The Indian initiative is a crucial part of its strategy to establish a strong presence in key markets and strengthen its supply chain for global expansion. But just like Tesla’s Musk, VinFast too has been lobbying the government for lowering import duties on fully built cars for at least a limited period. Perhaps the policy announced today would help Vinfast to also bring some of its cars to India before local manufacturing starts.
