Indian Government vows No Combustion Cars – One electric car in 2-years?

As part of the ambition to make India a green economy, Union minister Nitin Gadkari wants to slash GST (Goods and Services Tax) on hybrid vehicles and has vowed to rid the country entirely of the over 360 million petrol and diesel vehicles. “One hundred per cent,” Gadkari, the Union Minister for Road Transport and Highways, said when asked whether it is possible for India to get rid of petrol and diesel cars altogether.

Also, India is still heavily dependent on a fossil fuel-based energy system to power electric vehicles (EVs), and this needs to be changed. There is an urgent need to ensure 100 per cent renewable energy alongside electric vehicles to tackle the climate crisis.

It is difficult but not impossible. This is my vision,” Minister Gadkari said in an interview.

The Government of India (GOI) is pushing the EVs through incentive-based FAME III (Faster adoption and manufacturing of  electric vehicles) starting from July 2024. Under FAME I and FAME II India’s car buyers have started to lean toward EVs — 1.5 million (2-wheeler & 4-wheeler) were sold last year in 2023.

Experts say people want to buy electric cars for the driving experience also as there is no engine sound and very little NVH (noise, vibrations, and harshness), which makes the cabin very quiet and comfortable; however, about 7 per cent of respondents indicated “not enough choices of models within budget”, while 21 per cent felt e-cars are “more expensive as compared to regular cars.

The Government of India’s ( GOI’s) Production Link Incentive (PLI) scheme to boost domestic manufacturing of advanced automotive technology products, including EVs and their components, got the Cabinet nod in September 2021, it was touted to be a game changer.

Almost two years since just one electric car and two electric scooters have so far got the Domestic Value Addition (DVA) certification necessary to make incentive claims under the PLI scheme.

The government’s focus on localisation is quite clear. The recently announced EV policy, which is meant to attract the likes of Tesla, has mentioned DVA 11 times in the six-and-half-page notification.

But getting the DVA certificate is proving to be very tough for the industry.

Applicants must give their and their key suppliers’ manufacturing process flow diagram (MPFD), purchase agreements with the suppliers, invoiced bill of materials, import bills and last audited financials of key suppliers. Applicants need to disclose details of royalty/licence/technology agreements. Also needed are average discounts and dealer margins for the applied products across dozens of cities.

To be fair, the government has been opening the purse strings for the scheme. For automotive players, PLI sops are large at 13%-18% of the sales value of eligible products, and, therefore, can make a big difference to profitability of the products eligible for incentives.

Why is the auto industry not able to make the best of the PLI scheme?

To claim PLI benefits, one must get a certificate that the product has 50% domestic value addition from one of the four testing agencies of the Ministry of Heavy Industries.

But there was a problem. Since India doesn’t make battery cells, or semiconductors, or rare-earth metals, meeting the 50% localisation norm was proving tough to meet. Realising this, the government allowed partial exemption to these necessary imports.

China’s overcapacity distorts global prices and production patterns for electric vehicles and batteries. There are similar concerns in US and Europe, citing overcapacity as a reason for opening an anti-subsidy probe into Chinese EVs.

An oversupplied world is one where costs are low. But it will make plans by countries to onshore production much harder to justify.

On November 2, 2022, the Indian government came out with guidelines that “certification of minimum 50% domestic value addition by the testing agency (TA) based on invoiced/costed bill of material (BOM) by excluding cell price (required for assembly of battery power pack) on actual cost basis or up to a maximum of 25% of the price of the battery electric vehicles (ex-factory)”. Auto parts makers got similar exemptions for semiconductor parts and rare-earth magnets. This made it easier to hit the 50% localisation mark, and the industry became more hopeful of getting the subsidies.

To be sure, having localisation norms isn’t uniquely Indian. The US, under its Inflation Reduction Act of 2022, has made it mandatory for companies to make batteries and battery materials progressively more in the US or in friendly countries to get federal incentives.

Given the PLI scheme first came in September 2021, many approved companies had built business plans and made investments based on the assumption of getting incentives. For early movers in EVs, this delay isn’t just about not getting incentives, but a missed opportunity as with the incentives, unit economics would have improved drastically, and they could have ramped up as much.

Vertically integrated automakers like Tesla do have an advantage in this regard, as they make more parts in-house and as a software-first organisation have better traceability of information than traditional automakers. This also explains why Ola Electric is the only two-wheeler maker that has bagged two DVA certificates, while its competitors have none.

The government has already made qualifying for the PLI scheme a lot harder and included the turnover and net worth criteria. So much so that of the 115 applicants, only 85 were approved. Along with some common rules and standards, self-certification could have prevented the delay companies are facing in getting incentives.

The global EV market, once a booming sector with vast subsidy-assisted opportunity, has turned into a highly competitive arena. China’s electrified-car market is projected to slow for a second year, with a key industry body predicting sales growth in 2024 to drop to 25% from 36% last year and 96% in 2022.

A joint venture between China’s SAIC Motor Corp. and India’s JSW Group plans to roll out a high-end electric sports car in India to capture a bigger slice of one of the few large markets where the electric vehicle segment is still growing rapidly.

JSW and MG Motor are the latest to join a slew of carmakers doubling down on the burgeoning EV market in the world’s most-populous nation — a rare bright spot as EVs experience a cooling market in China, the US and Europe. — while Tesla Inc. hasn’t entered the market yet, leaving the field open for heavyweights such as BYD Co. and Tata Motors Ltd.