Business Standard


Does the new EV policy do enough to lure the Tesla boss to make his iconic electric cars in India?


Four years ago, Elon Musk kicked off a vociferous debate in India’s auto industry when he said he wanted to come to India with the Tesla, but the stumbling block was the steep import duties, the highest in the world, which needed to go down substantia­lly as a preconditi­on to Tesla’s entry.

Domestic players such as Tata Motors and Mahindra & Mahindra opposed any move to reduce duties on fully-built cars. Tesla, though, had the support of other global players with manufactur­ing facilities in India: Hyundai, Volkswagen, BMW, and others who, too, pushed for lower duties so that they could garner scale.

Last week, the government tried a fine balancing act by announcing a new electric vehicle policy that sharply reduces customs duties on imported electric cars with a CIF (cost-insurance-freight) value of above $35,000, from 70-100 per cent to 15 per cent for five years, provided the manufactur­er makes a minimum investment of $500 million in India within three years, and reaches domestic value addition of 25 per cent in the third year and 50 per cent in five years.

For the time being, at least, no one is opposing this.

Says R C Bhargava, Chairman of Maruti

Suzuki, India’s largest carmaker by far: “The government has put in enough safeguards to ensure the domestic industry does not face any real damage. By restrictin­g the number of vehicles and allowing lower duty for cars with more than $ 35,000 CIF value…. The market for it is very small, where domestic players don’t have a presence.”

A spokespers­on for M&M agrees: “The new EV policy reinforces the Make in India momentum, with requiremen­ts of bank guarantees, minimum investment commitment, and local value addition. This will accelerate the EV ecosystem in India.”

At present, India’s EV market at price points above $ 35,000 has six models, whose combined sales are in thousands. But that could change if a dozen high-end models come in, as is being expected from this year onwards.

Will musk make in India?

The policy is focused not only on making India Atmanirbha­r, but also ensuring the country does not lag behind the world leaders, such as China, in the transition from internal combustion engines (ICE) to electric. The intent is also to make India a global hub for electric car manufactur­ing, an opportunit­y the country missed with ICE vehicles.

In many ways, it could replicate India’s success in mobile devices, through the production linked incentive (PLI) scheme, where Apple Inc agreed to shift a substantia­l portion (12 per cent by 2023-24) of its assembly from China to India. Mobile devices are the reason electronic­s are shining in India’s export basket.

If Tesla comes in, India’s position as a manufactur­ing hub will rise many notches, as it will become only the second country, after China, to have both Apple as well as Tesla — both of them as iconic as a brand can possibly be – operating wholeheart­edly, with their technology, supply chain, and manufactur­ing operations, and supplying to the world.

The question is, does the new EV policy do enough to attract the big guns?

While everyone waits to hear from Tesla, BVR Subbu, veteran auto industry profession­al, former president of Hyundai Motors India, and board member at various auto companies, says: “I won’t wager how Tesla would react to this, but for now the biggest beneficiar­y could be Hyundai India, if it figures out how to play the game.”

Analysts say Hyundai, which recently acquired General Motors’ Talegaon plant, plans to invest ~ 6,000 crore — more than the $500 million threshold laid down in the new EV policy — to expand its capacity to 1 million. It could use the new policy to import its existing models at a much lower price and push volumes.

Vietnamese carmaker Vinfast, which lobbied for a lowering of duties, has said it would participat­e under the new policy. It is understood to be readying an investment of Rs 4,000 crore to set up a manufactur­ing plant in Tamil Nadu. On the strength of this investment, Vinfast could hasten its entry into India by importing some of its models priced at above $35,000.

It would be especially interestin­g to see how European carmakers respond. Is the Indian market big enough for them to commit more money to get the import duty advantage?

Another question is, whether global players can manufactur­e EVS in India at competitiv­e costs for the world market.

“The government has put in enough safeguards to ensure the domestic industry does not face any real damage. By restrictin­g the number of vehicles and allowing lower duty for cars with more than $35,000 CIF value… The market for it is very small, where domestic players don’t have a presence.”

R C Bhargava, Chairman, Maruti Suzuki India

Components of success

It is here that India has an advantage. Its vibrant component ecosystem already supplies to the best in the world. Unlike in mobile devices, where the supply chain is still a challenge – Apple Inc’s local value addition is 12-15 per cent after three years of PLI -- experts say everything for an EV is available in India, except the battery cell, where, too, the global players are readying to come to India.

Automakers acknowledg­e that Indian component suppliers offer European quality at prices that are 35 per cent lower than what is offered by their own vendors. Chinese suppliers offer the same quality, but at prices 25 per cent lower, giving India a substantia­l arbitrage advantage of 10 percentage points.

That is why EV makers can start with higher localisati­on.

“Nearly 18 per cent of the value addition comes from assembling alone. Our estimate is that Tesla can hit 25 per cent localisati­on within six months in India. It already imports components such as differenti­al gears and other parts and is looking at $2 billion worth of component imports this year,” says a senior executive of a components major.

However, Subbu points out that the domestic value addition targets in the new EV policy are too soft. “Given the competenci­es of India’s component industry, it could have easily defined a DVA of 50 per cent in year one, going up to 80 per cent in the fifth year,” he says.

He also argues that there is a need to define the detailed contours of minimum investment. It should include stamping, welding, surface treatment, and final assembly and testing, so that companies do not do mere goldplatin­g to reach the number. “There is a Chinese company that sells SKD (semi-knocked-down kits)-based EVS assembled in a shed of a 5-acre plot. We sure don’t need that.”

ICRA says the overall penetratio­n of electric cars in India is expected to touch 15 per cent by 2029-30 – a sizeable volume of more than 1 million -- from a mere 1 per cent in 2022-23. Tesla, for instance, is looking at manufactur­ing a compact model priced around $25,000 (about ~20 lakh) for Asia and Latin America. India can be a contender to become its manufactur­ing base.

Over to Elon Musk, then.

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