EV policy could intensify competition over the long term

The government’s move to promote India as a manufacturing hub for electric vehicles (EVs) comes at the right time, with the automobile industry already looking to shift towards electrification. The EV policy for passenger vehicles is designed to draw investments by global automakers. If it plays out as expected, it will accelerate EV adoption in India. For perspective, the share of EVs in the passenger vehicle segment was less than 2% in February, according to Vahan.

The minimum investment required under the scheme is ₹4,150 crore and manufacturing should commence within three years of receiving approval. Besides strengthening the EV ecosystem, the policy could also boost the Make in India initiative as it mandates domestic value-addition of 25% by the third year and 50% by the fifth. Elara Securities (India) notes that India could become an export hub in the future, given that global automakers are looking to diversify beyond China.

As such, the policy opens the door for companies such as Tesla and Vietnam’s Vinfast. While this will increase the number of companies in the domestic market, competition will intensify only when manufacturing starts in India. The scheme allows global automakers to import up to 8,000 units a year at a subsidized customs duty rate, subject to conditions. But this will hardly have a big effect on domestic companies such as Tata Motors Ltd and Mahindra & Mahindra Ltd.

Also, Tesla has much higher price points. For instance, Kotak Institutional Equities estimates landed cost of a Tesla at ₹42-74 lakh after adjusting for revised duty structure. The ex-showroom price of a Tata Nexon (the company’s most expensive model) is about ₹20 lakh.

However, Tesla plans to launch a mass-market EV, codenamed Redwood, by mid-2025. It’s expected to be priced at $25,000 (about ₹21 lakh) in global markets. “At this price point, we believe the product will create strong customer pull, given the company’s brand equity, superior product performance and its prowess in battery technology,” read the Kotak report dated 15 March.

Meanwhile, auto ancillary companies such as Sona BLW Precision Forgings Ltd and Samvardhana Motherson International Ltd, which supply global EV makers, stand to gain. In the near term, domestic automakers don’t face any significan’t market-share risks. But if Tesla or other global automakers decide to enter India thanks to this policy, domestic companies will have to step up their game.