• Rajeev Dimri, Partner |
3 min read

The ambition of Indian Government to position India as a front-runner in the EV space is not unknown. Rising focus on clean energy initiatives, reduction in carbon footprint (with target to achieve net-zero emissions by 2070 married with national campaign of Make-in-India reinforces the need for strategic initiatives to attract investments and boost domestic demand for EVs.

Considering the ambitious target set by NITI Aayog for achieving 30% EV penetration in India by 2030, Government has already undertaken multiple initiatives such as FAME, PLI schemes (automotive and ACC battery), several state industrial policies, etc. to induce investment and demand for EVs.

In furtherance to above initiatives, the Government recently released scheme for promoting manufacturing of electric passenger cars (‘e-4Ws’) with an aim to attract global EV manufacturers and promote India as a manufacturing destination for E-4Ws. Under this scheme, an applicant would be able to import completely built units of E-4Ws at significantly lower customs duty (up to prescribed limit), in lieu of making minimum investment of $500 Mn and achieving domestic value addition (‘DVA’) for manufacturing E-4Ws in India in a phased manner.

While plain text of the scheme appears self-explanatory, there are several nuances which would merit consideration by prospective applicants, inter alia including:

  • Tariff concession on import of E-4Ws with CIF value > $35K (from existing 70 % /100% import duty to 15%)
    • Huge reduction in entry barriers for global manufacturers who have been targeting India as a key market for E-4Ws but were hitherto discouraged due to high tariffs
    • Lesser customs tariffs directly lead to reduction in procurement price which helps in reducing working capital blockage, increasing profitability prospects for selected applicants
    • Players who are unable to opt for the scheme due to investment restrictions, would need to revisit their marketing and competitive strategy to cater to new segment of E-4Ws priced above $35K, but imported at significantly lower customs duty
  • Post-facto set up of manufacturing facility (within 3 years of receiving approval letter)
    • At present, the scheme text does not restrict selected applicants to manufacture same E-4W models in India which they intend to import by availing tariff concession. This may require applicants to deliberate on their business plan for launching various E-4W models in India
    • While there are no minimum sales or YoY growth criteria prescribed in the scheme notification, prospective applicants would need to frame clear business plan regarding future projections for production and sales of various models
    • A key condition of the scheme is the ability to meet 25% DVA criteria in 3 years and 50% in 5 years. This would require companies to map entire supplier network in India for procurement of key EV assemblies as part of their business plan. This would also include mapping potential ecosystem likely to be established by participants of existing PLI schemes for key components and batteries 
    • Since selected applicants would be allowed to import and sell fully built E-4Ws in initial stage of the scheme, there may be a conflict of interest for domestic manufacturers selected under auto PLI scheme, who are required to meet 50% DVA from the first year
  • Ceiling on count of cars allowed to be imported 
    • Scheme prescribes an upper limit of 8000 cars for import at concessional tariff per year. However, this limit is to be defined for each participant considering investment made as well as maximum quantum of duty proposed to be foregone. Given these limits, companies would need to simulate alternate scenarios to identify the optimum no. of cars to be imported over the period to gain maximum advantage under the scheme
    • Selection of right portfolio and pricing strategy would play a vital role in determining models to be imported during the tenure of scheme

Given the contours of scheme discussed above, it appears to be a promising initiative to ease Global automakers to enter the Indian market. While the scheme is still in its early stages, it has the potential to be the solution India needs to mark its position as the hub of advanced EV manufacturing. However, success of the scheme would significantly depend upon actual implementation, including ability of companies to comply with the requirements. All in all, it would not be inaccurate to say that EV adoption remains one of the key areas to track while monitoring the India growth story.