Boost for Electric Cars? India New Ev Policy reduced tax by 85% on imported cars

To promote electric cars, Indian government took a bold decision and announced new EV policy. The new policy which favors to electric vehicles and EV infrastructure, highlights that the tax on imported cars will be reduced by 85 percent. This is quite good for Elon’s Tesla who has been waiting to launch Tesla cars in India for the last 2 years.

The new EV policy aimed at promoting the adoption of electric cars in India. This new policy is expected to benefit foreign automakers who were previously hesitant to invest in the Indian car market due to the less favorable conditions (like heavy import tax) under the previous policy.

India Old Ev Policy for Imported Cars

There was a debate going on for a long time whether India imposes too much tax on the import of electric vehicles? 

You might have seen that tweeter now X CEO Elon Musk has tweeted many times about this, saying that because India imposes very high taxes on imports, his company Tesla has not been able to enter India, and there has often been debate about this.

The Indian government officials and ministers have stated that they will not make any special provisions for Tesla. If Tesla wants to come here and get concessions, they will first have to set up their factory. Here’s tweet from Elon musk when a user asked about Tesla plant in India.

Tesla will not put a manufacturing plant in any location where we are not allowed first to sell & service cars

— Elon Musk (@elonmusk) May 27, 2022

But now before 2024 general election, Indian government has introduced a new electric vehicle policy which gives big relief and can full-fill Elon musk and other car manufactures dream. Earlier. there was 70–100% tax on the imported vehicles. Meaning, if we take a vehicle that costs Rs 40 lakhs and it is imported into India, its cost would become 80 lakhs because the government imposed a 100% tax on it.

India New Ev Policy for Imported Cars

Now there has been a reduction of up to 85% percent on these taxes. So, the tax has been significantly reduced to a great extent and this is pretty good gift for those who waiting to start their operations in India. You can see the news “Tesla’s India entry gets boost as government approves new electric vehicle policy”, and now we will understand in detail what exactly happened here and how Tesla can benefit from this, among other things.

You would know that whenever any electric vehicle-related policy comes, it is brought by a ministry called the Ministry of Heavy Industries, to give a boost to electric vehicle manufacturing in the country so that more and more vehicles are produced in India. It is being said here that as many global companies as possible can take advantage of this. Obviously, Tesla being a big company, you know there is a Chinese company BYD, a Vietnamese company VinFast, BMW, Mercedes-Benz, whoever wants to bring or manufacture their electric vehicles in India, they can now do so easily.

Now the question is, what is this new policy? How will global players benefit from this?

The government has said that we will reduce the import tax and it will now be only 15% instead of 100%. But here, the government has kept some conditions that if you want to import electric vehicles from abroad and sell them in India, you will have to make some investment commitments.

You will have to invest at least 500 million dollars, which comes around Rs 4,150 crores. This means you will have to set up a factory for manufacturing electric vehicles in India. It is being understood that you have to invest at least $500 million in India, and then you can also import the cars at a low cost.

Apart from that the government is saying that you invest at least this much, and along with that, the government has also said that the company will also have to include local components. Below are the clear cut guidelines that a foreign manufacturer need to follow to avail tax benefits:

• Minimum Investment required: Rs 4150 Cr (∼USD 500 Mn)
• No limit on maximum Investment
• Timeline for manufacturing: 3 years for setting up manufacturing facilities in India, and to start commercial production of e-vehicles, and reach 50% domestic value addition (DVA) within 5 years at the maximum.
• Domestic value addition (DVA) during manufacturing: A localization level of 25% by the 3^rd year and 50% by the 5^th year will have to be achieved
• The customs duty of 15% (as applicable to CKD units) would be applicable for a period of 5 years
• Vehicle of CIF value of USD 35,000 or above will be permissible
•  The total number of EV allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of ₹6,484 Cr
• Not more than 8,000 EVs per year would be permissible for import under this scheme. 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.

This benefit is not just for companies that do not have a presence in India right now. Those that are already in India, like Mercedes, BMW, MG, they can also make an investment commitment here and import any vehicles they want. So this is beneficial for all global companies.

Final Words

This move, in a way, sends a signal, and gives confidence that if any foreign company comes, whether Tesla or any other, there will be good competition in India. Ultimately, we as consumers will also get benefit from this new EV policy and can see low cost Ev cars in next 5 years too.

With this new EV policy, the Ford motors who discontinued the operation in India in Sep 2021, will also get benefit. If the rumors are true, then Ford Motors will definitely invest in the Indian automobile market and once again we will see all Ford EV cars that will compete with other brands like Audi, BMW, Mercedes-Benz, Porsche, and Ferrari.

FAQs – New EV Policy

Question: What is the maximum number of vehicles that any company can import?

The calculation you can see is that it depends on how much investment you are making in India. Suppose a company like Tesla says that we will invest only $500 million in India. Then, based on that calculation, if they import a vehicle worth $35,000 dollars, they can import a maximum of 25,000 vehicles.

But if they say we will invest $780 million, then they can import up to 40,000 vehicles in five years. So it depends on how much investment they are making here. Yes, the maximum limit is that they can import only up to 40,000 vehicles in five years, and there is no upper limit on investment. You can invest as much as you want.

Question: Can Chinese companies also come to India?

The policy that has been brought, it is clearly written “All entities of foreign origin can participate and avail incentives under the scheme.” It has not been said here that China cannot, or any other country cannot. Anyone can participate.

But yes, remember friends, you might recall that in 2022, the government had brought an FDI policy. It said that if any investment comes from countries that share a land border with India like China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan; they require government approval.

So indirectly, it means that if any Chinese company, say an electric vehicle company, comes to India, then they will first have to take special permission from the Indian government. Only then can they come to India.

Question: How will the investment commitment be ensured?

A company says that we will invest $500 million. And in the meantime, these people start importing a lot of vehicles and selling them in India and making a huge profit, but after three or four years, it turns out that they have not made any investment at all. Then what will happen?

Look, the government has clearly said here that whatever tax benefit you are getting, the concession you are getting, you will have to keep this as a bank guarantee in your bank. And if you do not fulfill your manufacturing commitment, if you do not fulfill your investment commitment in India, then this will be invoked. Meaning, whatever benefit you got in duty, all those benefits will be taken back by the government.

So the government has made all these arrangements here.

Question: Why is this policy only for vehicles that are imported above $35,000?

So what happened was that you know there are two big companies in India, Tata Motors and Mahindra & Mahindra. They have already made a lot of investment in electric vehicles. Although they are not benefiting much or making a profit yet, but yes, they are gradually moving towards profitability.

So their stance was that look, the government was initially thinking of setting a limit of $25,000, but Tata Motors and Mahindra felt that if that happened, their entire market could be wiped out. People would not buy their cars and instead go for foreign cars. So for this reason, the government has provided this concession on import duty for vehicles above 35,000 dollars.

And you can also see that Tesla was planning to bring its cheapest model with some tweaks around 25,000 dollars to the Indian market. But now, since the import duty concession will only be given on vehicles above 35,000 dollars, it is being said that Tesla will most likely bring the same Model 3, Model Y to India , which costs around 40,000 dollars in foreign markets!