Lukewarm Response to India’s New EV Policy: Car Makers Hesitant Despite Incentives

India's government announced a new electric vehicle (EV) policy in March, aiming to boost domestic manufacturing through duty concessions. However, the policy has seen a muted response from car companies, with only one European manufacturer expressing conditional interest, as reported by The Times of India.

Tesla, a key target of the policy, has not yet shown interest, citing global challenges and reconsidering its plans in India. Vietnamese manufacturer Vinfast is also reconsidering its initial optimism about the policy, preferring local manufacturing at its upcoming Tamil Nadu factory over navigating the complex policy benefits for a limited number of cars.

The Ministry of Heavy Industries (MHI), responsible for automotive industry matters, has conducted one round of consultations but has not yet secured significant commitments. Another round of discussions is planned before finalizing the policy guidelines and opening the application process. Detailed guidelines on investment requirements and other modalities are also expected to clarify how companies can qualify for benefits under the scheme.

Foreign carmakers are apprehensive about committing investments under the new EV scheme, which requires at least $500 million in investments while offering a subsidized import duty of 15 percent for about 8,000 cars annually. Some German companies, including Volkswagen Group, which owns luxury brands like Audi, Porsche, and Lamborghini, are considering the policy. Despite initial discussions with the Ministry of Commerce and Industry, Tesla has not yet indicated any progress, with founder Elon Musk cancelling a planned visit to India earlier this year.

The new EV policy, approved on March 15, offers various incentives to attract global EV investments and establish India as a key manufacturing hub for advanced EVs. It aims to provide Indian consumers with access to advanced EV models, expand the ‘Make in India’ initiative, lower production costs, reduce oil imports, decrease urban air pollution, and promote a competitive domestic auto manufacturing industry.

Key requirements include a minimum investment of Rs 41.5 billion ($500 million), with no upper limit, and a three-year timeline to establish manufacturing facilities and commence commercial EV production. Companies must achieve 25 percent domestic value addition (DVA) by the third year and 50 percent by the fifth year. A customs duty of 15 percent will apply to completely knocked down (CKD) units with a minimum cost, insurance, and freight (CIF) value of $35,000 and above for five years, contingent on setting up manufacturing facilities within three years. The duty exemption will be limited to the investment made or Rs 64.84 billion, whichever is lower, with a maximum import limit of 40,000 EVs at a rate of no more than 8,000 per year for investments of $800 million or more. Unused annual import limits can be carried over. Investment commitments must be secured by a bank guarantee, which will be invoked in case of non-compliance with DVA and minimum investment criteria.

As it stands, officials remain hopeful about making progress in talks with Tesla and other manufacturers, but current indications do not suggest that India will see a lower-cost Tesla car manufactured locally anytime soon.