High-End Hesitation: Luxury automakers wary of new EV policy amid demand jitters

Representation Image (Credit: P:ixabay)

The electric vehicle (EV) policy announced by the government ahead of the general elections to entice global giants to manufacture EVs locally has found few takers among car makers as they feel that the small size of India's premium EV market does not justify the investments needed to avail of the policy benefits.

Per this policy, global carmakers can import electric CBUs (completely built units) at a concessional rate of duty for five years if they invest at least $500 million (about Rs 4,150 crore now) to make in India within three years. For manufacturers setting up such facilities in India within a three-year period, a customs duty of 15 percent will be levied on EVs of a minimum CIF (cost, insurance, and freight) value of $35,000 (around Rs 30 lakh) for a period of five years. However, global car manufacturers such as Mercedes, BMW, Audi, Lexus, etc., are yet to capitalise on this policy.

At present, the government levies 70-100 per cent tax on imported cars, depending on their value.

Luxury carmakers feel  the Indian market has not yet evolved to a point that justifies investment in the local manufacture of premium EVs, which cost Rs 50 lakh and above. Most of the car makers, especially the German ones, maintained that they intend to continue to import EVs over the next two-three years.

For Mercedes-Benz, which believes electrification is a marathon and not a sprint, the EV strategy is not led by a volume-led approach. A senior company official said that it has already invested more than Rs 3,000- crore in Pune and is running an EV assembly line there.

The German car maker believes that future investment in local manufacture of EVs will depend on the demand for premium EVs and continued policy support and incentives from the government.

“Future investment will depend on demand, which is linked to state and central government taxes. So, we would like to see if there is a clear policy statement from the government on the continuation of its incentives for the next eight to 10 years. If they continue, the next logical question would be the rate of acceptance and the demand,” he said, and noted that the company has sufficient capacity to meet the demand locally.

Echoing a similar sentiment, Vikram Pawah, MD, BMW Group India, commented, “Whenever we reach a certain volume threshold (of EVs), we will start producing them locally.” In his view, EV sales, though encouraging, are very low for BMW. “As they grow, we will take a call on production.”

Tata Motors' British arm Jaguar Land Rover (JLR) has also indicated that it is unlikely to take advantage of the policy due to certain factors like “additional obligations” of bank guarantees, etc.

"At this point in time, the EV policy is not  suitable for us. We do not intend to leverage it," Tata Motors' Group Chief Financial Officer P B Balaji told reporters in a post Q1 earnings conference call recently.

According to industry sources, other global car makers such as Audi, Volvo, and Lexus are also not keen to make electric cars locally, at least in the near term.

Skoda Auto VW Group (Audi India’s parent company) and Lexus didn’t respond to email queries.

Jyoti Malhotra, Managing Director, Volvo Auto India, believes that the government’s recently announced EV policy will encourage players and help develop the EV ecosystem.

However, he also maintained that the premium EV segment is still in its nascent stage in India, albeit evolving. “We will continue to service this segment in the most appropriate way, depending on the market and segment development,’” he noted.

To be sure, there are some EV car makers who are keen on leveraging the new EV policy and setting up domestic manufacturing capacity.

Vietnamese EV maker VinFast said that it expects to open its Indian factory in Tamil Nadu six months ahead of schedule, in the first half of next year, to capitalise on the Indian government’s commitment to EV development.

“In order to benefit from the long-term incentives for EVs, we will concentrate on accelerating the construction of the manufacturing facility,” said Pham Sanh Chau, CEO, VinFast India.

Industry analysts reckon that the uncertainty around EV demand, absence of a comprehensive long-term strategy for EVs, and rigid localisation mandates are deterring established OEMs from committing to investments under the current EV scheme.

“This scheme seems more tailored for new market entrants who can exploit import advantages and navigate substantial capital investment, as they are building their presence in India from the ground up, ” said  Puneet Gupta, Director, S&P Global Mobility.