What is the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI) all about?
SPMEPCI is another initiative of the Centre to promote electric mobility in the country, which was launched in March 2024. The Scheme has been notified on Monday and the portal for applications will be started within this month. The Scheme was launched to attract investments from global EV makers like Tesla, and to generate employment.
What are the key features of the SPMEPCI?
As per the guidelines, the approved applicants will setup manufacturing facilities in India with a minimum investment of Rs.4,150 crore ($500 million), for manufacturing electric four-wheelers (e-4W). The manufacturing facility(ies) should be made operational within a period of three years from the date of issuance of approval letter by the Ministry of Heavy Industries (MHI) and should achieve minimum domestic value addition (DVA) of 25 per cent within the same period.
The approved applicant will also have to move towards minimum value addition of 50 per cent within a period of five years from the date of issuance of approval letter by MHI.
Once the applicants commit the investment, they will be allowed to import completely built units (CBUs) of e-4W manufactured by them overseas at a reduced customs duty of 15 per cent (instead of 70 per cent). The value of these CBUs should be up to $35,000 and they can import a maximum of 8,000 units in a year.
Currently, standard import duties on CBUs costing more than $40,000 are fixed at 110 per cent and passenger vehicles costing up to $40,000 have 70 per cent basic customs duty.
Are foreign EV makers impressed by the scheme? Which automakers are interested in utilising this scheme?
As of now, foreign players who are already manufacturing in India with their subsidiaries including Mercedes-Benz, Skoda-Volkswagen Group, Hyundai and Kia have shown interest to set up a separate line for the EVs and to import some of their global EV models to India.
The guidelines clarified that only new plant, machinery, equipment, R&D, and certain building costs (within limits) count toward investment; land costs are excluded and charging infrastructure costs are capped at 5 per cent of the committed investment.
Eligibility criteria require applicants to demonstrate minimum global automotive revenues of ₹10,000 crore and global fixed assets of at least ₹3,000 crore, ensuring only established players can qualify. However, these companies have already invested hugely in India over the last decade including in their R&D centres here, so one must wait and watch for the fresh investments in the new Scheme.
Why is Tesla not interested in manufacturing in India?
The MHI on Monday has accepted that Tesla is not interested to participate in this Scheme because the Elon Musk-owned company was more interested on dealerships and opening showrooms to sell imported cars rather than manufacturing here.
Tesla has long wanted to enter India, but disagreements over import duties and local manufacturing commitments have slowed down the progress. In fact, over the last one year, the company’s representatives participated only in the first round of stakeholder discussions for the Scheme last year, and after that in the next two rounds of meetings for stakeholder deliberations, the company’s representative did not attend at all.
One of the reasons is also that Tesla has to bring its suppliers to India, which would incur a huge cost to the partners as well, and without a certain number of sales expectations in a year, they can’t make those investments.
Will this scheme disincentivise domestic manufacturing of EVs? What are domestic players saying?
Not exactly, because the domestic EV players already enjoy through various other policies. For instance, PLI Scheme for Automobile and Automotive Components (PLI-Auto), which was launched in 2021 with an outlay of Rs.25,938 crore as financial incentives to promote domestic manufacturing and draw investments into the value chain of the automotive manufacturing industry.
Another was PLI Scheme for Advanced Chemistry Cell (PLI-ACC), with a budgetary outlay of Rs.18,100 crore was launched by MHI to incentivise manufacturers of advanced chemistry cells. This scheme aims to build local manufacturing capacity of 50 GWh out of which 30 GWh has already been subscribed.
Also, Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme, launched in 2019 with a budgetary layout of Rs.11,500 crore. The scheme provided upfront subsidy to purchasers of EVs so as to reduce their cost of acquisition.
Apart from these, more than 22 States and Union Territories have policies dedicated for EVs. These policies aim to promote the adoption of EVs in India by providing incentives through a bouquet of fiscal and nonfiscal measures such as subsidies, concessions/ waivers in taxes, and infrastructure development.
Companies including Tata Motors, Mahindra & Mahindra, Ashok Leyland, Bajaj Auto and many others enjoy the benefits that ranges from electric two/ three-wheelers to commercial vehicles. What domestic players have been asking is for a level-playing field as companies like M&M and Tata Motors have invested millions of dollars in local EV manufacturing. The new Scheme if gets successful, would intensify the competition for these local automakers who currently dominate the EV segment.
What will be the impact of this scheme on the economy?
Being the third largest automotive market in the world, India can lead the global transition from conventional internal combustion engine (ICE) powertrain to a more efficient and decarbonised EV technology. Electric Vehicles are expected to become a major category within the automobile sector. This scheme is poised to attract investments from global EV manufacturers and promote India as a manufacturing destination for EVs. The scheme may also help put India on the global map for manufacturing of EVs, generate employment and achieve the goal of “Make in India”.
What are some of the challenges?
The new Scheme has stringent conditions like revenue targets and penalties for failing to fulfill them, besides the investment commitment. It mandates a minimum revenue of ₹5,000 crore in the fourth year and ₹7,500 crore a year later for any applicant approved under this Scheme. Those falling short will face a penalty of up to 3 per cent on the revenue gap.