The arrival of Tesla’s Elon Musk next week once again brings into focus India’s new approach to the promotion of electric vehicles. So far, EV adoption was riding on FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles). Phased out now, this was essentially a demand-side subsidy push for EVs with an accent on two and three wheelers.
Now a combination of supply-side initiatives — a production linked incentive (PLI), which is in force for auto, auto components and batteries, and the Make in India plan for EVs announced in March — is expected to get India to meet EV penetration targets for 2030. The ‘gear-shift’ from pushing demand to increasing supply seems well timed. With elevated fuel prices, demand looks somewhat promising. However, the key issue lies in calibrating the transition. A May 2022 NITI Aayog report puts the projected overall penetration levels of EVs at 30-35 per cent of annual sales by FY30. In FY24, this stood at just 7 per cent, with two and wheelers comprising 94 per cent of EV sales. Cars and buses are yet to make the EV transition. To boost e-buses, the Centre has been looking at acceleration of deployment under PM e-Bus Seva. It has promised a ‘payment security mechanism’ for manufacturers in case State transport units do not pay up. The logical next step is the focus on passenger cars.
The March 2024 scheme intends turning India into a global hub for e-cars, bringing in FDI inflows as well as export earnings. The scheme allows applicants to set up manufacturing facilities with minimum investment of $500 million, on the condition that it will be operational within three years. Domestic value addition of 25-50 per cent is expected alongside in three to five years. A go- ahead for finished e-car (or CBU) imports of the applicant (subject to certain conditions) in the meantime, at a reduced customs duty of 15 per cent (70-100 per cent otherwise), is the carrot. This seems a win for global players such as Tesla that are eyeing India for the next leg of growth following stiff competition elsewhere. However, while reducing tariff barriers for imports and incentivising local production by foreign players, the government must ensure a level playing field for domestic OEMs and first movers.
It is worth noting that a handful of domestic component makers already supplies to the likes of Tesla. To make sure that the component ecosystem in India benefits in equal measure, localisation norms need to be strictly met by foreign players. A minimum CIF value for imports at $35,000 could protect domestic interest, but dilution should be avoided. Finally, unlike e-2- and 3-wheelers which mainly run intracity, furthering adoption of e-cars and long distance e-buses requires charging infrastructure on highways to keep pace. Charging networks should be powered by non-fossil sources to meet emission goals. A policy shift to boost supplies and exports seems well-timed, provided checks and balances are in place.