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India's EV Policy Could Soon Favor Existing Automakers, Tesla's Plans Uncertain
India is likely to revise its electric vehicle (EV) policy to benefit automakers with existing investments, according to sources. This adjustment comes as Tesla Inc. has yet to commit to building a factory in India. The current policy, which aims to boost local production of high-end EVs, only supports new investments.
The government is considering allowing investments in plants that produce both internal combustion engine and electric vehicles to qualify for incentives. This move aims to make large-scale investments more feasible for automakers. Companies like Volkswagen-Skoda, Hyundai-Kia, and VinFast have shown interest in the Scheme for Manufacturing of Electric Cars (SMEC).
Concerns from Automakers
Automakers have raised two main issues: the scheme should recognise existing investments and include plants producing petrol and diesel cars along with EVs. Currently, EVs hold a small share of India's passenger vehicle market, making high investments difficult to justify. No automaker has officially commented on participating in the EV scheme since its announcement on March 15.
The initial SMEC guidelines stated that only companies investing in greenfield plants for EV manufacturing within three years of government approval would be eligible for incentives. There is no provision for considering past investments in local EV production.
Potential Policy Adjustments
"Initially, the scheme was designed for newer companies making EVs. Consultations are on to see if the scheme could be made more attractive now even for traditional companies," a senior official aware of the development said, adding, "among the tweaks being considered is to specify a backdate for investments being made in indigenous manufacturing of high-end EVs".
A cut-off date for prior investments would make firms like VinFast eligible for incentives under SMEC. The Vietnamese carmaker has already started building a new plant in Tamil Nadu and plans to invest $500 million over five years in India.
Government's Next Steps
The Centre is currently preparing standard operating procedures (SOPs) for implementing SMEC. A second official mentioned that some legacy companies interested in the scheme have concerns about the required investment levels for EV-only facilities. The market for high-end electric vehicles priced above Rs 25 lakh is small in India.
"With the American carmaker unlikely to make a commitment towards setting up a local factory near-term, consultations are on with industry stakeholders to make the scheme more amenable also for legacy players, which could also include giving a go-ahead for investments in facilities manufacturing both internal combustion engine and electric vehicles," said one of the persons cited above.
Under SMEC, the government will allow imports of completely built-up EVs with a minimum cost, insurance and freight value of $35,000 at 15% import duty for up to five years if companies invest at least $500 million in new plants.
In April, Tesla CEO Elon Musk postponed his trip to India where he was expected to announce plans for an EV factory. He was scheduled to meet Prime Minister Narendra Modi and other officials during this visit.
Localisation Requirements
Restricting SMEC solely to greenfield EV plants aimed at accurately assessing localisation by companies. Under this scheme, companies must roll out electric cars with 25% local content initially, increasing to 50% by the fifth year.
Auto companies and component makers will need to calculate domestic value addition (DVA) across their supply chain and present these details to vehicle testing agencies for assessment.
This policy revision aims to balance supporting new entrants while recognising existing players' contributions. It seeks broader participation from automakers already invested in India's automotive sector.
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