India’s New EV Policy: Reduced Import Duties and Investment Incentives Position India as an Attractive Destination for Tesla’s Expansion Plans, with import duties slashed to 15 percent from 70 percent.
India’s recent unveiling of a new electric vehicle (EV) policy signals a strategic move to entice foreign players like Tesla from the US and Vinfast from Vietnam into India’s burgeoning electric car market. This policy, delineated in a gazette notification, extends lucrative incentives to automakers willing to make significant investments in the country.
What is the new EV Policy?
Under the fresh policy framework, automakers committing to invest a minimum of $500 million in India over the next three years gain the privilege to annually import up to 8,000 EVs priced at $35,000 or above. The import duty for these vehicles will be slashed to 15%, a substantial reduction from the prior rate of 70%. In tandem, these companies are mandated to kickstart local manufacturing operations and ensure a 50% domestic value addition in vehicles produced within India within three years, subsequently escalating to 50% within five years. Oversight of this scheme will be managed by the Ministry of Heavy Industries.
Initial discussions indicated a price threshold of $25,000-$35,000 for vehicles to qualify under the policy. However, indigenous original equipment manufacturers (OEMs) such as Tata Motors and Mahindra & Mahindra advocated for elevating this threshold to $35,000 and beyond to safeguard their investments and competitive edge, given their plans to introduce premium EVs within this price range in India.
Tesla, in particular, had been lobbying for a duty reduction applicable to its planned $25,000 EV tailored for markets like India. However, given the policy’s focus on EVs priced at $35,000 or higher, Tesla is likely to introduce its Model 3, retailing close to $40,000 globally, in India. This move necessitates efforts towards localizing its operations to ease its entry into the Indian market.
The timing of this policy rollout, just ahead of the anticipated announcement of the model code of conduct for the upcoming general elections, strategically positions India as an attractive investment destination without alienating its domestic industry. Additionally, the government stipulates bank guarantees from carmakers equivalent to the reduction in import duty, refundable only upon fulfillment of all scheme criteria within five years.
While the policy appears tailored for Tesla’s India entry, given the compliance of its Model 3 and Model Y with the specified price bracket, Vinfast, the Vietnamese automaker, faces the challenge of identifying suitable models for the Indian market from its global portfolio, which includes models both below and above the $35,000 threshold.
Notably, existing OEMs like Hyundai, Kia, BYD, MG Motor India, Mercedes Benz, and BMW stand excluded from the scheme unless they commit fresh investments of at least $500 million in assembly operations, battery/cell manufacturing facilities, or charging infrastructure within the next three years.
Though detailed scheme guidelines are awaited, companies seeking eligibility must meet minimum global turnover requirements. Despite potential minimal impact on domestic automakers due to the high price point cutoff, the entry of players like Tesla promises to augment competitiveness within the industry, instilling confidence across the ecosystem.
In response to the policy, Mahindra & Mahindra lauded its reinforcement of the “Make in India” momentum, affirming their commitment to launching Born Electric SUVs by January 2025. Vinod Aggarwal, president of SIAM, expressed support for the policy, emphasizing its pivotal role in nurturing a robust EV ecosystem in India.
In summation, India’s new EV policy aspires to attract foreign investments, invigorate the electric vehicle market, and harmonize the interests of domestic manufacturers. With a keen focus on incentivizing substantial investments and fostering localization, the policy lays the groundwork for the entry of global players like Tesla and Vinfast into India’s burgeoning EV landscape.
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