India’s $14 billion Electric Vehicle policy offers automakers fresh incentives

In a significant development that potentially sees global carmakers increasing their footprints in India’s huge car market, New Delhi plans on offering fresh incentives to companies making electric vehicles (EVs) as part of a policy push in the auto sector aimed at attracting $14 billion in investments over the next five years.

The new automotive scheme, under discussion since mid-2020, has a focused approach, said industry sources while adding, the plans sees the government providing $8 billion in incentives to carmakers and suppliers over a course of five years to drive large investment in the sector.

While final details of the scheme are likely to be disclosed within a month, companies will be able to apply for incentives from April 1, said sources.

According to the draft policy, companies will receive 4-7% government cashbacks on the eligible sale and export value of vehicles and components along with an additional 2%  bonus for eligible sale of EVs and their components, as “growth incentives” to promote electric mobility.

Tesla is already gearing up to invest in India while rivals, including Volkswagen, Ford, Tata Motors and Mahindra & Mahindra have plans to invest billions of dollars into the EV segment to meet stricter global emissions regulations.

The policy is an opportunity for automotive component manufacturers in India to cater towards EVs.

The incentive package is part of a broader $27 billion program to attract manufacturers away from China and who want a less volatile supply chain and exports.

However, high interest rates, logistical costs and power tariffs make it a little more expensive for companies to operate in India compared to rivals such as Vietnam and Thailand; however with India significantly improving its infrastructures, incentivizes companies willing to invest in India.

“The (new) scheme proposes financial incentives to help overcome these disabilities and make India more competitive,” reads the draft policy document while referring to inefficiencies that it said can lead to 5-8% higher costs for manufacturers in India.

Automakers who want to benefit from the scheme must meet conditions including minimum global revenue of $1.4 billion; for auto parts makers this threshold is $69 million. 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.

 “A change in strategy is needed to focus on promoting firms that have the scale, competitive ability and management capabilities to be automotive champions,” reads the draft policy document.

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