EVs: New policy to boost domestic manufacturing, bolsters Tesla’s entry plans

Virendra Pandit

New Delhi: The Centre on Friday approved a new policy to boost domestic manufacturing of electric vehicles (EVs), envisaging a minimum investment of USD 500 million (Rs. 4,150 crores) and encouraging high-volume production, economies of scale, and lower costs of production.
It also aims at reducing air pollution, lowering the trade deficit, and promoting healthy competition among EV players.

According to the Union Ministry of Commerce and Industry, the policy is designed to attract investments in the e-vehicle space by reputed global EV manufacturers.

This will provide Indian consumers with access to the latest technology, boost the ‘Make in India’ initiative, and strengthen the EV ecosystem.

The policy entails three years for setting up manufacturing facilities in India, starting commercial production of EVs, and reaching 50 percent domestic value addition (DVA) within five years at the maximum.

Also, DVA during manufacturing would include a localization level of 25 percent by the third year, and 50 percent by the fifth year will have to be achieved, it said.

“The customs duty of 15 percent (as applicable to completely knocked down or CKD units) would be applicable on vehicles of minimum Cost, Insurance, and Freight (CIF) value of USD 35,000 and above for a total period of five years subject to the manufacturer setting up manufacturing facilities in India within three years,” the ministry said.

The duty foregone on the total number of EVs allowed for import would be limited to the investment made or Rs. 6,484 crores (equal to incentive under the PLI scheme), whichever is lower.

Also, a maximum of 40,000 EVs at not more than 8,000 per year would be permissible if the investment is USD 800 million or more. The carryover of unutilized annual import limits would be permitted.

“The investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone. The bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines,” it added.

With this policy, the government has also paved the way for US-based, Elon Musk-promoted EV major Tesla’s entry in India as this scheme permits the import of completely built-up (CBU) cars at a 15 percent import duty.

Fully assembled Completely Built-Up (CBU) vehicles priced at over USD 40,000 attract a 100 percent tax. Those below this price level are subject to 70 percent tax. With the new scheme, companies like Tesla can import CBUs at the same rate as Completely Knocked Down (CKD) units that attract 15 percent import duty and have to be assembled. Tesla had requested for duty reduction during its meetings with government officials.

Lower import duty will be allowed to original equipment manufacturers (OEMs) that commit to a minimum investment of Rs 4,150 crore (USD 500 million) in India.

An applicant company, or its affiliated enterprises, must have a minimum revenue threshold of Rs 10,000 crore from automotive manufacturing, along with a global investment commitment of Rs 3,000 crore in fixed assets.

“Under this scheme, EV passenger cars (e-4W) can initially be imported with a minimum Cost, Insurance, and Freight (CIF) value of USD 35,000, at a duty rate of 15 percent for five years from the date of issuance of approval letter by the Ministry of Heavy Industries (MHI).”

If an investment amounts to USD 800 million or more, a maximum of 40,000 electric vehicles (EVs) would be allowed at a 15 percent duty rate. There will be a minimum number of vehicles a company can import and the threshold will be determined by the investment they commit.

The investment commitment will have to be backed up by a bank guarantee in lieu of the custom duty forgone. The bank guarantee will only be refunded upon achieving 50 percent domestic value addition and making an investment of at least Rs 4,150 crore, or up to the amount of duty foregone over five years, whichever is greater.

Applications will be solicited within 120 days or more from the notification of this scheme. The period for accepting applications through the Notice Inviting Applications will extend for 120 days or more. The Ministry of Heavy Industries (MHI) retains the authority to open the application window, as needed, within the initial two years of the scheme.