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With Elon Musk’s Tesla yet to plug into India, government plans changes in new EV policy; adjustments may benefit older car companies

New tweaks to electric vehicle policy work: The Indian government is considering modifications to its recently introduced electric vehicle (EV) policy to provide incentives to automakers that have already invested in the country, according to sources familiar with the matter. This development comes as Tesla Incthe American electric car maker, has not yet made a firm commitment to build a factory in India. The current policy only supports new investments aimed at accelerating local manufacturing of advanced electric cars.
According to an ET report, the automakers have raised two primary concerns: firstly, that the scheme should take into account current investments, and secondly, that it should include factories that produce both petrol and diesel cars alongside electric cars, given the small the share of electric cars in India’s passenger car market, which does not justify high investments. No automaker has yet made an official comment about participating in the electric car program since it was announced on March 15.
Discussions are also ongoing with stakeholders regarding another critical issue affecting automakers. The government could potentially consider investments in plants that produce both internal combustion engines and electric vehicles as eligible for incentives, to increase scale and make large investments profitable for automakers, according to the sources cited by the financial daily.

EV Sales Racing Ahead

Several car manufacturers, i.a Volkswagen-SkodaHyundai-Kia and VinFasthave expressed interest in the new policy, known as Electric car manufacturing schedule (SMEC).
Tesla CEO Elon Musk had planned a visit to India in April to meet Prime Minister Narendra Modi, government officials and space technology executives. During this trip, Musk was expected to announce Tesla’s intention to establish an EV manufacturing facility in India. However, he suddenly postponed the visit.
Also read | VinFast, Tesla’s rival, will soon enter India with locally assembled electric vehicles; likely to sell cars in the Rs 25-30 lakh range
According to a source, given the unlikelihood of the US automaker committing to building a local plant in the near future, discussions are underway with industry stakeholders to make the system more accommodating to incumbents. These discussions may include allowing investment in facilities that manufacture both internal combustion engine vehicles and electric vehicles.
SMEC offers reduced import duties of 15% on pre-assembled EVs with a minimum CIF value of USD 35,000. This concession is available for a period of five years, provided companies invest at least $500 million in establishing new manufacturing facilities in the country.
The SMEC scheme initially mandated that only companies investing in new EV manufacturing facilities within three years of receiving government approval would qualify for incentives. The system did not consider retroactive investments for local EV production.
Also read | India’s hopes for Tesla investment die as Musk stops contact
According to a senior official, discussions are underway to make the system more appealing to traditional companies as well. One of the proposed changes is to set a back date for investments made in domestic manufacturing of advanced electric cars. This change would allow companies such as VinFast, which has already started construction of a new factory in Tamil Nadu and pledged to invest $500 million over five years in India, to be eligible for incentives under SMEC.
Another official stated that some incumbents interested in the scheme have expressed concern about the stated amount of investment in EV-only facilities. The market for high-end electric vehicles, with prices above Rs 25 lakh, is very limited in India. To make investments of Rs 4,000 crore, companies require scale, which is limited to Rs 25 lakh in the Indian market.
The decision to limit SMEC to greenfield EV facilities was primarily intended to accurately assess companies’ localization of content. Under the current system, companies must produce electric cars with 25% local content, rising to 50% by the fifth year. Car companies and component manufacturers will need to calculate domestic value added (DVA) across their entire supply chain and submit this data to vehicle testing agencies for evaluation.

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