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Potential Adjustments Expected in India’s New EV Policy Could Favor Established Automakers

 

India is poised to revise its electric vehicle (EV) policy to favor automakers that have already invested in the country, according to sources familiar with the matter speaking to ET. This move comes as US electric car giant Tesla Inc. has yet to commit firmly to building a factory in India. Currently, the policy is focused on promoting local manufacturing of high-end electric vehicles (EVs) and supports only fresh investments.

Consultations are underway with stakeholders to address concerns raised by automakers. One key consideration is potentially allowing incentives for investments in plants that produce both internal combustion engine vehicles and EVs. This adjustment aims to enhance scale and viability for automakers, such as Volkswagen-Skoda and Hyundai, who have shown interest in India’s new Scheme for Manufacturing of Electric Cars (SMEC).

Automakers have highlighted two main concerns: the need to recognize existing investments and include plants manufacturing petrol and diesel vehicles alongside EVs. This inclusion is advocated because EVs currently hold a small share of India’s passenger vehicle market, making substantial investments challenging to justify.

Under SMEC guidelines, the government plans to permit imports of completely built-up EVs valued at a minimum of USD 35,000, with a 15% import duty waiver for up to five years for companies investing at least USD 500 million in new plants. However, since its announcement on March 15, no automaker has officially confirmed participation in the EV scheme.

Tesla CEO Elon Musk recently postponed a planned visit to India where he was expected to announce Tesla’s local EV factory plans. In response, discussions are ongoing with industry stakeholders to potentially amend the scheme to accommodate legacy automakers, possibly by recognizing investments in facilities producing both internal combustion engine vehicles and EVs.

Initially tailored for new entrants in the EV sector, SMEC presently requires companies to invest in greenfield plants for EV manufacturing within three years of government approval to qualify for incentives. There is currently no provision for retrospective consideration of investments in local EV production.

“As the scheme evolves, efforts are underway to attract traditional automakers by exploring options such as backdating investments in indigenous high-end EV manufacturing,” noted a senior official familiar with the developments. This approach could make firms like VinFast eligible for SMEC incentives, as the Vietnamese automaker has begun constructing a new plant in Tamil Nadu with plans to invest USD 500 million over five years in India.

The government is in the process of finalizing standard operating procedures for implementing SMEC. Discussions continue with legacy automakers who are interested in the scheme, addressing concerns about the significant investment required for EV-only facilities, particularly given the limited market demand for high-end EVs priced above INR 25 lakh in India.

Originally focused on greenfield EV plants to assess localization accurately, SMEC mandates companies to achieve a 25% local content requirement, increasing to 50% by the fifth year. Automakers and component manufacturers will need to calculate and report domestic value addition (DVA) across their supply chains for assessment by vehicle testing agencies.

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