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With Elon Musk’s Tesla yet to plug into India, government plans changes in new EV policy; tweaks may benefit legacy car companies

July 8, 2024

New EV policy tweaks in works: The Indian government is considering modifications to its recently introduced electric vehicle (EV) policy to provide incentives to automakers that have already invested in the country, according to sources familiar with the matter. This development comes as Tesla Inc, the US electric carmaker, has yet to make a firm commitment to building a factory in India.

The current policy only supports fresh investments aimed at accelerating the local manufacturing of high-end electric cars.

According to an ET report, automakers have raised two primary concerns: first, that the scheme should take into account current investments, and second, that it should include plants producing both petrol and diesel cars alongside EVs, given the small share of EVs in India's passenger vehicle market, which does not justify high investments. No automaker has yet made any official comment on participating in the EV scheme since its announcement on March 15.

Discussions are also underway with stakeholders regarding another critical issue affecting carmakers. The government may potentially consider investments in plants producing both internal combustion engines and electric vehicles as eligible for incentives, in order to add scale and make large investments viable for automakers, according to the sources quoted by the financial daily.

Several carmakers, including Volkswagen-Skoda, Hyundai-Kia, and VinFast, have expressed interest in the new policy, known as the Scheme for Manufacturing of Electric Cars (SMEC).

Tesla's CEO, Elon Musk, had planned a visit to India in April to meet with Prime Minister Narendra Modi, government officials, and spacetech executives. During this trip, Musk was expected to announce Tesla's intention to establish an EV manufacturing facility in India. However, he abruptly postponed the visit.

According to a source, given the unlikelihood of the American automaker committing to the construction of a local factory in the near future, discussions are underway with industry stakeholders to make the scheme more accommodating to established players. These discussions may include permitting investments in facilities that manufacture both internal combustion engine vehicles and electric vehicles.

SMEC offers reduced import duties of 15% on fully assembled EVs with a minimum CIF value of $35,000. This concession is available for a period of five years, provided companies invest at least $500 million in establishing new manufacturing facilities within the country.

SMEC scheme initially mandated that only companies investing in new EV manufacturing plants within three years of receiving government approval would qualify for incentives. The scheme did not consider retrospective investments for local EV production.

According to a senior official, discussions are underway to make the scheme more appealing to traditional companies as well. One of the proposed modifications is to specify a backdate for investments made in indigenous manufacturing of high-end EVs. This change would allow companies like VinFast, which has already commenced construction of a new plant in Tamil Nadu and pledged to invest $500 million over five years in India, to be eligible for incentives under SMEC.

Another official stated that some established companies interested in the scheme have expressed concerns about the specified investment amount in EV-only facilities. The market for high-end electric vehicles, priced above Rs 25 lakh, is very limited in India. To commit investments of Rs 4,000 crore, companies require scale, which is capped at Rs 25 lakh in the Indian market.

The decision to limit SMEC to greenfield EV plants was primarily intended to accurately assess the localization of content by companies. Under the current scheme, companies must produce electric cars with 25% local content, increasing to 50% by the fifth year. Auto companies and component makers will need to calculate domestic value addition (DVA) across their supply chain and submit these details to vehicle testing agencies for evaluation.

[The Times of India]

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