Indian EVs Policy Puzzle: Established Automakers’ Call for Clarity in India’s EV Market

Dew Briefs :

• German, multinational companies concerned over new EV policy in India.
• Fear of unfair treatment with special import duty rates for new entrants.
• BMW, Volkswagen group, Mercedes-Benz reconsidering stance and updating global headquarters.
• Indian government aims to attract foreign investment, become manufacturing hub.
• Scheme offers tax relief, lower import taxes for companies investing over $500 million.
• Hyundai, Kia, Indian manufacturers also want recognition for early investments in electric space.

Diver Insights :

• The Indian government has announced a policy overhaul for high-end foreign-made electric cars.
• The import duty for vehicles like Tesla and VinFast will be lowered to 15% for up to five years.
• Companies must commit to investing at least $500 million for local manufacturing to qualify for the reduced import duty.
• This policy marks a significant shift as the government has traditionally protected the automobile sector with high tariffs.
• Cars costing up to $35,000 currently face a 35% import duty, while those above that threshold attract a 100% levy.
• Some multinational companies are considering involving their local embassies in India to advocate for a “level-playing field.”
• Elon Musk’s company, Tesla, has hinted at using India as a manufacturing hub for affordable vehicles targeting both domestic and export markets.
• VinFast has announced its intention to invest $2 billion in setting up a facility in Tamil Nadu, India.

The Indian government has announced a policy overhaul for high-end foreign-made electric cars, reducing the import duty for vehicles like Tesla and VinFast to 15% for up to five years. However, this is contingent on the companies investing at least $500 million for local manufacturing. This marks a significant shift as the government has traditionally protected the automobile sector with high tariffs.

German companies, including auto giants like BMW, Volkswagen, and Mercedes-Benz, are concerned about India’s new EV policy favoring new entrants with lower import rates. They seek fair treatment for their early investments in localisation.

Korean automakers and local embassies also advocate for a level-playing field in the industry. The Modi-led government’s new incentive scheme aims to push investments into electric vehicle manufacturing.

The scheme offers tax relief to companies committing to investments of over $500 million and establishing manufacturing facilities within three years. This move positions India as a prime manufacturing hub and aims to attract foreign investment for local production.

Companies like Hyundai, Kia, and Indian homegrown makers feel that their early investments in the electric space should be considered retrospectively. They believe they should not be penalized for being early investors in electric vehicle production and localisation in India. These companies want the government to take into account the funds they have already invested in green technology in their local setups.

VinFast, a Vietnamese electric vehicle giant, has revealed plans to establish an integrated EV facility in Tamil Nadu, India. The company has committed to investing up to $2 billion in this project, with an initial $500 million allocated for the first phase over five years. VinFast aims to create an EV manufacturing hub with an annual capacity of up to 150,000 units.

The construction of the facility is set to begin in 2024, positioning VinFast strategically to capitalize on India’s rapidly expanding EV market. The project is expected to generate between 3,000 to 3,500 employment opportunities, contributing to local employment and skill enhancement.

Some multinational companies are considering involving their local embassies in India to advocate for a “level-playing field.” These embassies have been monitoring the situation and anticipating policies that incentivize new entrants into the Indian market.

Both Tesla and VinFast have expressed interest in using India as a manufacturing hub for affordable vehicles targeting both domestic and export markets.

Established Automakers Voice Concerns Over India’s EV Policy Shift

High Import Duty Reduction for New Entrants:

• The Indian government has announced a policy overhaul, significantly reducing the import duty for high-end foreign-made electric cars like Tesla and VinFast to 15% for up to five years.
• This reduction is contingent on these companies investing at least $500 million for local manufacturing, indicating a shift from traditional protectionist measures in the automobile sector.

Concerns of Established Players:

• German auto giants such as BMW, Volkswagen, and Mercedes-Benz have expressed concern over the new EV policy.
• They believe the policy favors new entrants by offering lower import rates, potentially putting them at a disadvantage despite their early investments in local production and localization efforts.

Advocating for Fair Treatment:

• These established companies are advocating for fair treatment and recognition of their contributions to the Indian electric vehicle sector.
• They argue against penalties for their early investments and seek a level-playing field in the industry to compete effectively with new entrants benefiting from the policy changes.

Appeal for Retrospective Consideration:

• Companies like Hyundai, Kia, and Indian homegrown makers have made early investments in electric vehicle production and localization in India.
• They appeal to the government to consider their past investments in green technology and local setups, urging against being penalized for their early initiatives.

Call for Inclusion in Incentive Scheme:

• These companies want to be included in the government’s incentive scheme, which offers tax relief to companies committing to investments of over $500 million and establishing manufacturing facilities within three years.
• They argue that their early investments should be acknowledged and rewarded within the framework of the incentive scheme.

Desire for Policy Stability:

• Overall, there is a desire among established players for policy stability and predictability in the Indian electric vehicle market.
• They emphasize the importance of consistent and transparent policies that encourage long-term investment and growth in the sector.