BriefCASE: India rolls out red carpet for global electric carmakers with new EV policy

On March 15, the Union Government of India approved a new
electric vehicle (EV) policy to attract investments from global
electric car companies and promote local manufacturing in the
subcontinent. The new EV policy, which is in line with the
Government's flagship Make-in-India initiative, comes at a time
when Tesla is officially looking to enter the Indian passenger car
market and Vietnam's VinFast has already commenced constructing its
EV plant in the southern state of Tamil Nadu, with a committed
investment of $2 billion.

In its new EV policy, the Government of India has reduced the
customs duty on importing electric cars as completely knocked down
(CKD) kits from 70% to a mere 15%, subject to cars with a minimum
cost, insurance and freight (CIF) value of $35,000 and above for a
period of five years.

The duty cut is, however, applicable for car companies
committing to invest a minimum of $500 million and set up an EV
manufacturing plant in India within 3 years from the issuance of
the approval letter by the Government's Ministry of Heavy
Industries. Additionally, the policy also mandates the qualifying
automaker to achieve a localization rate of 25% domestic value
addition (DVA) by the third year of starting production operations
and 50% DVA within five years.

A much-needed boost

The new policy allows the qualifying carmakers to import a
maximum of 40,000 EVs at the rate of 8,000 units per year, given
the investment in India is $800 million or more. However, it does
permit the carryover of unutilized annual quotas to the next
year.

The new EV policy is aligned with India's long-term goals of
reducing its oil imports, lowering the trade deficit and trimming
emissions intensity by 45% by 2030. The move is expected to open
the floodgates to the world's third-largest auto market for global
carmakers. It is also timely. EV sales growth in the market is
slowing down and EVs only accounted for 2% of total car sales in
2023, some way short of the government's target of 30% by 2030.

Negotiations with Tesla

The new EV policy is also widely seen as the result of months of
hard negotiations between the Indian government and Tesla. Notably,
the US EV maker has been delaying its India entry for at least five
years due to duties that were as high as 100% on imported
completely built units (CBUs) with a price tag of $40,000 or
more.

However, talks moved forward when India's Prime Minister
Narendra Modi met Tesla CEO Elon Musk during his state visit to the
US in June 2023. “He's pushing us to make significant investments
in India, which is something we intend to do. We are just trying to
figure out the right timing. I am confident that Tesla will be in
India,” Musk told the media immediately after meeting with Prime
Minister Modi.

The Indian government also offers incentives under its
production linked incentive or PLI scheme to support the local
production of batteries. The National Program on Advanced Chemistry
Cell (ACC) Battery Storage, first launched in May 2021, was
allocated a budget of 181 billion rupees (equivalent to about $2.5
billion at May 2021's exchange rate).

“We think the push for localization would draw interest from the
domestic as well as global battery makers to invest in cell
manufacturing facilities. While domestic cell manufacturers lack
the expertise and experience in this domain, they mostly
collaborate with overseas companies for technology assistance. The
unavailability of key raw materials and the supply chain challenges
would be the key reasons for global battery makers to not move
ahead with setting up facilities in India just yet. However, with
the increasing need for batteries in India to fulfill the
localization target, more investments in cell manufacturing are
expected,” said Deya Das, Senior Research Analyst (Battery), at
S&P Global Mobility.

Author: Amit Panday, Senior Research Analyst, Supply
Chain & Technology, S&P Global Mobility

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