India revs up EV push with new incentives for manufacturers

EV, electric vehicles
The government will offer import duty cuts to carmakers who invest significantly in domestic EV production.

The Union government will hold a second round of discussions with stakeholders in the electric vehicle industry before finalising its new scheme to promote domestic EV manufacturing. The proposed scheme will offer import duty concessions to car makers for investing significantly and meeting domestic value addition targets. Automakers looking to benefit must fulfil the specified criteria and make fresh investments under the new scheme, as old investments will not be considered.

After releasing the policy guidelines and completing the second round of discussions by the end of this month, the ministry of heavy industries will start accepting applications from July 15.

India’s EV sector is generating buzz among global giants such as Tesla. The Elon Musk-led company recently had its first official engagement with the Indian government, along with other global automotive manufacturers, to seek clarification on the new policy for electric vehicles. These manufacturers are particularly interested in investment guidelines and the timeline for the DVA requirement. The ministry has now clarified the definition of investment for all stakeholders, aligning it with the PLI (production-linked incentive) scheme.

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The new scheme for EVs 

After the expiration of the FAME schemes, the government announced a new policy for electric vehicles manufacturers in March, looking to revolutionise the electric vehicles industry. The scheme to promote manufacturing of electric passenger cars in India (SPMEPCI) offers reduced import duties for original equipment manufacturers investing at least $500 million and establishing a plant within three years. For five years, companies can import electric vehicles with a CIF (cost, insurance, and freight) value exceeding $35,000 at a reduced rate of 15% (down from the current 70-100% range). Additionally, manufacturers must achieve a 25% DVA within the initial three years and 50% by their fifth year of operations in the country.

The new scheme emphasises the development of local supply chains to support electric vehicles manufacturing. This includes incentives for companies that source materials and components from local suppliers, thereby reducing reliance on imports and fostering the growth of domestic industries. The government aims to create a robust ecosystem for electric vehicles manufacturing that not only boosts production but also generates employment opportunities and technological advancements within the country.

Clarifying what constitutes investment, the government said investments will include expenditures on core manufacturing equipment and facilities, along with supporting costs for packaging, transport, and installation. However, building construction costs are limited to 10%, and royalty payments for imported technology are excluded. Setting up a new production line within an existing facility qualifies as a new investment, and the application window might reopen after consultations conclude.

The scheme has attracted major global companies, including VinFast, Mercedes-Benz, BMW, Kia, Volkswagen, Toyota, Hyundai, and Renault-Nissan, which participated in stakeholder consultations last month. Indian car makers such as Tata Motors, Maruti Suzuki, and Mahindra & Mahindra also participated in the first round of meetings.

The government has proposed initiatives to support the development of EV infrastructure, such as grants for setting up battery swapping stations and fast-charging networks. These initiatives are designed to complement the new electric vehicles manufacturing scheme and address the range anxiety commonly associated with electric vehicles. By improving the accessibility and convenience of electric vehicles charging, the government hopes to encourage more consumers to make the switch from traditional vehicles to electric ones.

Challenges to EV adoption in India

India aspires to be a global leader in EVs with the goal of leading a clean and sustainable transportation future. In pursuit of the global goal of achieving net zero emissions by 2050 and reducing vehicular pollution, many countries, including India, are promoting the use of electric vehicles instead of fossil fuel-driven vehicles.

The International Energy Agency’s Global EV Outlook report highlights rapid electric vehicle adoption. Since 2010, global EV stock has skyrocketed from zero to 26 million vehicles in 2022. China is leading the adoption, with nearly half of all electric vehicles globally. In fact, China and Europe combined hold a staggering 85% share of the global electric car market, with the United States trailing behind at 10%. This surging demand is reflected in sales figures, with roughly one in five cars sold worldwide in 2023 being electric.

A global push towards electric vehicles is underway, with government initiatives across the world encouraging their adoption and phasing out traditional gasoline cars. However, this ambitious goal faces significant challenges.

A major barrier to EV adoption is the high initial purchase cost. To address this, the government is exploring additional fiscal measures, such as reducing GST on electric vehicles and providing income tax deductions for individuals who purchase electric vehicles. These financial incentives aim to make EVs more affordable and appealing to a broader segment of the population, accelerating the transition to cleaner transportation options.

One of the biggest roadblocks is the lack of charging infrastructure. EV owners are deterred by limited access to refuelling stations. While the government is pushing for more charging stations, there is still a long way to go before the country becomes truly compatible with electric vehicles. Private investment will play a significant role in achieving this, as the private sector needs to ramp up the establishment of charging points, which could also serve as a lucrative business opportunity.

Another critical factor in the EV transition is consumer awareness and education. The government plans to launch awareness campaigns highlighting the environmental and economic benefits of electric vehicles. These campaigns will focus on dispelling myths about electric vehicles performance, safety, and maintenance costs, which are often perceived as disadvantages compared to traditional vehicles. By educating the public, the government seeks to build consumer confidence and drive demand for electric vehicles.

The high cost of batteries is another obstacle. More government subsidies and tax breaks can help bridge the price gap between electric vehicles and traditional vehicles, which is necessary until the desired level of electric vehicles adoption is achieved. India also needs to ramp up indigenous battery manufacturing to reduce costs and dependence on imports. Research into next-generation batteries with longer ranges and shorter charging times is a crucial step.

Financing options for EVs are currently less attractive compared to traditional vehicles. Banks and financial institutions need to offer tailored loan products with lower interest rates and longer repayment terms to make electric vehicles more accessible to a wider range of consumers. Government guarantees and incentives for lenders can further catalyse adoption of electric vehicles.

The government is working on creating a favourable regulatory framework to support EV innovation. This includes streamlined approval processes for new technologies for electric vehicles, standards for battery recycling, and policies to encourage research and development in the electric vehicles sector. By fostering an environment conducive to innovation, the government aims to position India as a leader in the global electric vehicles market, driving technological advancements and sustainable growth.