India's Auto Industry At A Crossroad: Hybrid Vs Electric Vehicles

Published: Sunday, July 21, 2024, 16:00 [IST]

Stakeholders in the passenger vehicle industry are divided between hybrid and electric vehicles, each with their own interests Initially, electric vehicles (EVs) were as the sole alternative to combustion engines. However, hybrids have now emerged as a strong contender. The auto industry is now questioning whether both models can coexist or if policy will favour one over the other.

Hybrid Vehicles: A Viable Alternative?

In the hybrid car market, Maruti Suzuki and Toyota are leading players. Due to the limited charging infrastructure in India, proponents of hybrid vehicles argue that they offer a solid alternative. Currently, hybrid vehicles are taxed at 28 percent under GST, but there is speculation that this rate might be reduced to make them more affordable.

Recently, the Uttar Pradesh government announced a complete waiver of registration tax on strong hybrid electric cars (HEVs) and plug-in hybrid electric vehicles (PHEVs). This move is expected to boost the adoption of hybrid vehicles in the state.

Government Policies for New Energy Vehicles

"There is an expectation for the government to introduce policies for new energy vehicles (NEVs), encompassing biofuels, plug-in hybrid vehicles (PHEVs), hybrid electric vehicles (HEVs), hydrogen, and flex-fuel vehicles," said Rajat Mahajan, consulting partner at Deloitte. "The focus is shifting towards reducing emissions per vehicle and promoting a green energy transition. Comprehensive policies for NEVs will support this broader objective," he added.

Extending production-linked incentive (PLI) schemes and reducing import duties could attract investments by foreign automakers. This could potentially make India an export hub for advanced automotive technologies.

Electric Vehicles: The Push Towards Sustainability

The rise of hybrids is relatively recent compared to EVs, which have long been considered the replacement for internal combustion engine (ICE) vehicles. Major players like Tata Motors and Mahindra & Mahindra have been significant contributors to this sector. Proponents of EVs argue that diverting focus from EVs could hinder India's progress towards its climate goals and stifle growth.

Tata Motors and Maruti Suzuki shares have gained over 2 percent each in anticipation of the budget, while Mahindra & Mahindra shares have declined by over 5 percent.

The upcoming budget is expected to introduce policies that support new energy vehicles (NEVs). These include biofuels, plug-in hybrids, hydrogen-powered cars, and flex-fuel vehicles. Such measures aim to reduce emissions per vehicle and promote a transition to green energy.

The future of India's automotive industry hinges on how well it can balance between promoting hybrids and EVs while ensuring sustainable growth and meeting climate goals.