Luxury car makers may steer clear of new EV policy

Mumbai | New Delhi: The India units of luxury car manufacturers such as Mercedes-Benz, BMW and Audi may steer clear of the government’s new electric vehicle (EV) policy, which stipulates a sharp cut in import duty on condition that a $500 million investment is made in local manufacturing.

The luxury car makers that have already been present in India for decades would rather accelerate local assembly of EV models in the country as the money will need to be ploughed in within three years of receiving approval under the scheme, said auto executives. The aforementioned companies didn’t officially comment on investments under the new policy.

Given that luxury car manufacturers have already invested in India through plants and operations, they don’t see much benefit in another large investment for a segment that’s currently less than 2% of the broader car market. Besides, assembling kits in India already allows for a lower duty structure.

“Anybody can assemble any car in India. The duty on CKD (completely knocked down) kits is 15% and this can be done without any commitment of further investments for manufacturers who already have plants for internal combustion engine vehicles,” a senior industry executive said on condition of anonymity. “The new electric vehicle policy has been designed to help new companies such as Tesla and VinFast to set up operations in the first few years before they can start local assembly.”

Under the new EV policy announced March 15, the government will allow the import of completely built-up (CBU) electric cars that have a minimum cost, insurance and freight value of $35,000 (Rs 29.2 lakh) at 15% import duty for a period of five years in exchange for a minimum investment of $500 million to start local manufacturing. India levies import duty of up to 100% on completely built-up cars. Vietnamese EV maker VinFast is signing up for the policy.

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“With a long-term growth commitment in India, we have pledged an expenditure of $500 million, which includes the electric vehicle manufacturing facility in Tamil Nadu,” VinFast India CEO Pham Sanh Chau had said in a statement on March 18. “This forward-looking policy will help us introduce a wide variety of smart, green, premium-quality SUVs at inclusive prices, along with outstanding after-sales policies.”

The Volkswagen Group, which sells vehicles under the VW, Skoda, Audi, Porsche and Lamborghini brands in the country, is studying the new EV policy. “We are examining the implications of the policy at the group,” said Balbir Singh Dhillon, head, Audi India. “There are commitments required related to investments and localisation.” Dhillon didn’t elaborate on future investments. A Mercedes-Benz India spokesperson didn’t specify the company’s plans with regards to EV policy. “We are invested in the market, having an aggressive product strategy with more than 12 new products planned for debut in 2024, of which 3 will be new BEVs.” A BMW India spokesperson declined to comment.

Elon Musk-founded EV maker Tesla, which had lobbied for duty reliefs, didn’t respond to queries.

Currently, 100% duty applies to CBUs priced at $40,000 (Rs 33.5 lakh) and more, while those below that are subject to 70% tax. The companies that join the EV scheme will have to comply with additional conditions such as increasing the rate of localisation to 25% within three years and to 50% in five years.

“Today, everything is being looked at from the regulatory or greenhouse reduction point of view,” said VG Ramakrishnan, managing partner at Avanteum Advisors, a boutique management consulting and advisory firm. “What’s unknown with regards to the switch to EVs is whether the consumer — the biggest stakeholder in the entire ecosystem–will move at the pace at which the governments of various countries would want them to move.”

It will take six-eight months for benefits under the new EV scheme to start being felt in the market, said an auto industry executive, “By the time they apply and get approvals… There could be some impact (on account of the policy) starting the end of this year or beginning of next year.”

Harry Byrne

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