Market has potential to attract $14 bn in investments over five years. Attractive incentives up for grabs for carmakers and suppliers over a five-year period to drive large investment in the sector.
There is perhaps no better time for the Indian government to renew their plans and push forward to attract global corporate players into India’s EV eco-system brimming as it is with promise and potential for unprecedented growth.
For India, specifically, this is the right time for the authorities to push aggressively forward with plans to introduce electric vehicles. As the economy surges ahead there are bright chances of this having a profound bearing on health, environment, oil imports and savings on foreign exchange.
In an interview to India Global Business, Naveen Munjal, MD, Hero Eco Group and Hero Electric Vehicles, had said that, “Pre-Covid, India had about 12 of the 15 most polluted cities in the world. Two weeks into Covid and suddenly we had only two to three cities in that top 15. This is a chance for us to restart. We have a huge problem with air pollution. There is research done by Harvard, which says being exposed to PM 2.5 for a long time increases one's chances of being infected by Covid. We are going to have to start looking at our environment in a more responsible fashion. The EV sector is an easy one to begin with.”
The government of prime minister Narendra Modi has for long been conducting assessments on the structured introduction for global EV players and, according to reports from Reuters, India is reportedly prepared to launch a massive boost in forms of incentives to companies making EV’s as part of its broad auto sector scheme which has the potential to attract $14 bn in investments over five years.
The spectre of pricing
There has always been the spectre of price hanging over the heads of EV sales in India. EV pricing points to the luxury end of the automobile market given that the average price of all cars (50%) is around $8,000. Bloomberg NEF had estimated that it would take more than a decade for EVs to achieve price parity with petrol vehicles in India. This weak demand, coupled with a lack of solid incentives, had resulted in keeping investors at bay.
India desperately needs to reduce its dependence on fuel and, at the same time, address its problem with pollution, for which Modi has made an international commitment.
While tabling the 2021-2022 Union Budget, Finance Minister Nirmala Sitharaman has announced that the government would lean more towards a policy that would support fuel-efficient, environment-friendly vehicles that would reduce pollution and the oil import bill. Vehicles were to be subjected to fitness tests after 20 years of running in automated fitness centres in the case of personal vehicles (PV) and after 15 years in the case of commercial vehicles (CV). But these measures alone would not have been enough. According to Reuters, a new automotive sector scheme has been under discussion since mid-2020 to provide a more focused approach. The plans envisage $8 billion of incentives for carmakers and suppliers over a five-year period to drive large investment in the sector. The final details of the scheme are expected within a month, but companies will be able to apply for incentives from April 1, according to sources.
Companies will receive 4-7% government cashbacks on the eligible sale and export value of vehicles and components, but for EVs and their components there is an additional 2% as a "growth incentive" to promote electric mobility, according to the draft policy document.
The draft policy reportedly also states that automotive component manufacturers in India must be ready to pivot their product offerings to cater for the shift towards EVs.
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There is much to gain from the government’s drive forward – namely the proliferation of the call to Make in India by wooing global players to pitch their tents in the country as part of a $27 bn plan to entice manufacturers from players such as China and Vietnam and get a bigger slice of the global supply chain and exports cake. There is also the expectation that the scheme, when it fructifies, will bring an additional $14 bn in investments which could create 5.8 million jobs and ensure a total tax revenue of $4 bn over five years. India is also reportedly clearing the decks to ensure that the regular irritants that could deter interest - like steep interest rates, power tariffs, inadequate infrastructure and high logistics costs - are no longer a benchmark to discourage investors and encourage them to consider rivals such as Thailand or Vietnam.
Walking the whole nine yards
Scale is also a yardstick that the government will be considering when assessing the worth of an investor. Will they have the ability to walk the whole nine yards when doing business in India? As per studies conducted by the government it has been noted that current players have been constrained in their ability to invest and undertake the necessary risks required to achieve rapid growth. Which is why to benefit from the government’s current push forward in the EV sector automakers must meet certain conditions that include a minimum global revenue of $1.4 billion. For auto parts makers it is $69 million. The companies must grow by at least 8% each year to qualify for the incentives, which are also linked to the distance between the factory and point of sale.
There is already a statement of intent as far as investment is concerned. Ola’s Bhavish Aggarwal has announced that it will begin construction of the world’s largest two-wheeler factory in Tamil Nadu which would have the potential to push out 10 million electric scooters and two-wheelers, which translates into one EV every two seconds, once it reaches full factory capacity by June-July next year. The impact of this venture can be massive as it stands to account for 15 percent of the two-wheeler production capacity in the world. The factory itself will be dubbed as Ola’s global manufacturing hub and ship vehicles within India as well as to major markets overseas. Aggarwal’s Ola Cabs is valued at around $6 bn.
Also getting a foot inside the door with an aim to prying it wide open has been Elon Musk who has announced plans of bringing the famed Tesla model into India. In January this year, Tesla formally registered its company "Tesla Motors India and Energy Private Limited" with the Registrar of Companies (RoC) in Bangalore. Musk and India are no strangers to each other in what has been a courtship that has largely gone unreported till prime minister Modi paid a visit to the company’s factory in California during his famed visit to the United States. The optics of this visit was not lost to the industry and consumers. Musk reaffirmed his interest with India when he tweeted a World Economic Forum article in 2017 which underscored the government's commitment to have only electric cars sold in the country by 2030. While it is also a fact that Tesla opened a factory in China in 2019 the dynamics of global busines has changed since given India’s current global influence, across multiple platforms, and its ability to turn the curve during the pandemic.
Musk’s recent tilt towards India can be just the tonic that the EV industry needs to power its engines. But the government is also ensuring that the EV eco system is one that benefits all which is why Ford, Volkswagen and India's Tata Motors and Mahindra & Mahindra have all agreed to join the party.
Time to fasten seatbelts and prepare for an interesting ride.