A move by India's Uttar Pradesh state to waive some levies on hybrid cars will make them 10% cheaper, delivering Japan's Toyota Motor a big win in lobbying efforts and raising industry and analyst expectations that other states could follow suit.
Just as it does with electric cars, the government of India's most populous state will also waive the registration tax on some hybrid car sales, it said in a July 5 notification.
Hybrid cars offer fuel savings as they operate on both electric motors and combustion engines.
Shares of Maruti Suzuki, India's top carmaker which produces and sells hybrid cars in partnership with Toyota, have surged 5.5% since local media reported on the state's notification for the first time this week.
"This is a sizeable incentive provided by a state for hybrid cars. Uttar Pradesh's move could encourage other states to follow," Morgan Stanley said in a note, adding that with more hybrid models to come, their share of total sales will rise.
Uttar Pradesh accounts for 10% of India's total car sales.
Toyota, which holds an 85% share of India's 'strong' hybrid car market with its fast-selling Hycross and Hyryder SUVs, is "likely to be a key beneficiary of this move, followed by Maruti Suzuki," Nomura said in a note.
Toyota and Maruti Suzuki did not respond to Reuters queries.
The state's levy exemptions apply to so-called strong hybrids, which can run on electric motors for a while, and to plug-in hybrids.
Strong hybrid models made up less than 3%, or about 28,000 units, of India's total car sales of 1 million in January-March this year, while EVs made up nearly 4%, according to Nomura.
HIGH LEVY ON HYBRIDS
Indian Prime Minister Narendra Modi's government has focused its green mobility push on electric vehicles, offering companies millions of dollars in incentives to build such cars, while giving no concessions for hybrids.
India's federal sales tax on EVs is just 5%, while the levy on hybrids is as high as 43%, close to the 48% imposed on petrol cars. Registration taxes levied by a state are separate, increasing the overall car cost.
Honda Motor, which sells a strong hybrid variant of its popular City sedan in India, said the decision would "undoubtedly attract a larger set of customers to join the nation's green mobility mission".
Toyota, the world's biggest carmaker, has long lobbied Modi's government to cut taxes on hybrids, which it argues pollute less than petrol cars but receive scant policy support.
These lobbying efforts have been opposed by domestic players like Tata Motors and Mahindra & Mahindra that have placed large bets and investments on EVs and do not want the government to change its policy or taxation stance.
Hyundai Motor is evaluating plans to launch its first hybrid car in India as early as 2026, and Mahindra said in May it was "closely looking at" hybrid technology.
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