India’s EV push needs a subsidy fillip

India’s push to develop the electric vehicle (EV) industry has come at a time when the global environment crisis is deepening. The world is warming at a higher rate this year than the target of 1.5°C set in the Paris Agreement. It is in the backdrop of the debate on these issues at the ongoing COP29 in Baku that this country is racing to reduce carbon emissions by shifting to renewable energy in the transport sector. EVs are already visible in metros like Delhi and Mumbai, but far more investment is needed in both production and related infrastructure to make a significant impact.

The latest Economic Survey has given an indication that there may be some relaxation in allowing Chinese investments.

There is evidently recognition that the pace needs to be stepped up as a new investment-friendly EV policy was launched earlier this year. A positive response from global automobile majors is only now being reported.

Volkswagen of Germany, Toyota of Japan and Hyundai of South Korea are the brands cited as showing interest. They are all lured by the prospect of being allowed to import fully built-up cars at reduced duty levels, though long-term investments will have to be made through greenfield and brownfield projects. Currently, domestic manufacturers like Tatas, Mahindras and Ola dominate the market in the four-, three- and two-wheeler categories, but many more players will be needed to meet the demand over the next decade. Sales had faced a slump over the past year, but there is now a pick-up, with consumers recognising the long-term benefits of renewables. In fact, the last Auto Expo saw nearly all manufacturers unveil a wide variety of electric, hybrid and CNG vehicles; next year’s Expo is expected to have an even greater range.

The name conspicuously missing from the list of potential investors, however, is the one courted most assiduously by the government — Elon Musk’s Tesla. There has been speculation that the concessional duty on fully built-up EV imports was meant to meet Musk’s requirements. However, there has been little response from the iconic billionaire despite his avowed affection for Prime Minister Narendra Modi. A highly publicised trip to India last April was called off suddenly, and instead Musk flew to China. The fact is that the Tesla plant there is critical for the company, given that it accounts for nearly 40 per cent of the global deliveries. Whether Musk will be prepared to make similar investments here while tackling the infamous Indian red tape is an issue that remains in the realm of speculation for now.

Other prominent names missing from the list of potential investors include Chinese companies that have developed cutting-edge technology in this area. They are gearing up to meet the competition from the prospect of autonomous self-driving cars being introduced shortly by Tesla in China. These Chinese players, including Byd, which has a commanding 35 per cent market share in its home country, have shown little enthusiasm for India’s new EV policy. Both Byd and Great Wall had submitted billion-dollar investment proposals last year that were reportedly rejected for various reasons, though the underlying cause was the tense state of bilateral political relations. The result is hesitation to submit plans under the new policy, with the focus being kept on imports rather than investment.

The latest Economic Survey has given an indication, however, that there may be some relaxation in allowing Chinese investments. The rationale given in the Survey is that countries like Turkey have welcomed manufacturing projects while raising tariff walls against EV imports. The shift in strategy may have come a bit late, in the light of reports that the Chinese authorities are hesitant about transferring advanced technology to selected countries. EV firms are said to have been directed to avoid using high-tech processes and focus only on the assembly of semi-knocked-down kits in countries like India and Turkey.

This is despite the fact that China is locating EV plants in countries like Spain, Hungary and Thailand in a bid to avoid punitive tariffs proposed in key markets like the European Union (EU). Talks are underway between China and the EU to arrive at some kind of a compromise formula, but if these fail, tariffs as high as 35 per cent could be levied on state-run EV firms.

The tussle with the EU over EVs looks like a precursor to the possible imposition of tariffs on Chinese goods by the incoming Trump administration. The US President-designate has declared that tariffs would be raised for all imports; these could go up to 60 per cent for China. It is in this global scenario that India is trying to expand its footprint in the EV arena. It may appear to be lagging behind its northern neighbour, but to be fair, the government has been trying to nudge the domestic automobile industry in this direction for quite some time.

Production has picked up, but critical bottlenecks remain in the form of heavy import dependency for lithium batteries and insufficient charging stations. Battery cell demand is predicted to rise from 4 gigawatt hours in 2023 to 139 gigawatt hours by 2035, according to S&P Global Mobility. Much of this requirement will have to be met with imports. Similarly, the expansion of charging infrastructure is moving slowly, primarily due to high capital costs. The government needs to consider expanding subsidies for these facilities as matching growth in this area is essential for the evolution of the EV industry.

The drive towards revving up the EV sector comes even as smog-filled skies cover the National Capital Region. It is clear that the environment has to take greater precedence in policymaking than ever before. Vehicular emissions, according to a TERI study, account for as much as 47 per cent of PM2.5 air pollutants. There is little option but to switch rapidly to renewable energy in the transport sector. Strategies are needed to cover the entire ecosystem, not just manufacturing plants. It is only then that a shift towards EVs can be made possible in all segments — two-wheelers, three-wheelers and four-wheelers. Comprehensive policies must be evolved for a sunrise sector that may help the country move out of the grim shadow of pollution into the sunlight.