India’s new EV policy to electrify local manufacturing

India’s new policy introduced last week to step up production of electric vehicles (EVs) in the country is expected to draw global manufacturers such as Tesla and VinFast Auto.

The scheme aims to promote India as a manufacturing destination so that EVs with the latest technology can be manufactured in the country.

The policy entails a minimum investment of $500 million (about ₹4,150 crore), with no caps on maximum funding.

The new policy outlines a three-year timeline for setting up EV manufacturing facilities in India, with the goal of commencing commercial production and achieving 50% domestic value addition within five years.

Companies are required to increase their use of local materials to 25% by the third year and 50% by the fifth year of operation.

Additionally, imported vehicles with a minimum cost, insurance, and freight (CIF) value of $35,000 will be subject to a 15% customs duty over a five-year period, contingent on the establishment of manufacturing facilities in India within three years.

The scheme also sets limits on duty benefits for imported EVs, tying them to the amount invested or a cap of ₹6,484 crore, whichever is lower.

To encourage investments, companies investing $800 million or more will be allowed to import up to 40,000 EVs over five years, with an annual limit of 8,000 vehicles. The policy also allows flexibility with the carryover of unused annual import quotas.

To ensure commitment to these targets, companies will need to back their investment promises with a bank guarantee, which may be called upon if the stipulated domestic value addition and minimum investment criteria are not met.

This move is part of a broader strategy to make India a hub for electric vehicle production and reduce its dependency on imported vehicles and components.

Vinod Aggarwal, president of auto makers’ lobby Siam said “a holistic view has been taken by the government” in the best interests of the country.”

Considering that India sold 42,000 luxury cars in 2023, the plan to import a maximum of 8,000 premium EVs per annum at a concessional rate will lead to a market penetration of about 20%, InCred Equities said in a statement.

“The scheme is attractive for global new EV makers like Tesla or recent EV joint ventures such as Mahindra-Volkswagen in case they embark on setting up a plant,” it said, adding that there is a “marginal disadvantage to incumbents like Mercedes and BMW’s ICE capacity and EVs imported at a high duty.”

“The policy will benefit the auto component segment in the case of companies that are already supplying to EV makers globally such as SAMIL, Bharat Forge and Endurance Technologies as they can do near-shoring from India plants,” it said.

Spokespeople of Tesla and VinFast Auto did not immediately respond to emails seeking comment.