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With Tesla Hesitant, India Revises EV Policy to Favor Legacy Automakers

Balancing Investment Incentives: New Policy Aims to Support Both ICE and EV Production

10 July 2024

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Savleen Kaur

India produced 3X more unicorns than China in 2022.png
  • India is revising its EV policy to benefit established automakers that have already invested in the country, especially those involved in both ICE and EV production.

  • The revised policy may include incentives for investments in both ICE and EV plants, making large investments more viable for automakers like Volkswagen-Skoda, Hyundai-Kia, and VinFast.

  • Modifications to the Scheme for Manufacturing of Electric Cars (SMEC) may include backdating investments to acknowledge past contributions to local EV production, addressing concerns about high investment requirements for EV-only facilities.


Tesla, a leading US electric car manufacturer, has been hesitant to make a firm decision about building a factory in India. The existing EV policy mainly supports new investments for high-end electric car manufacturing. Automakers have expressed concerns, suggesting that the policy should also acknowledge existing investments, including those in petrol, diesel, and electric vehicle production. Given the small market share of EVs in India, the current policy makes high investments challenging to justify.


Industry discussions indicate that the government is considering expanding the policy to include incentives for investments in both ICE and EV plants. This move is expected to make large investments more viable for automakers. Companies like Volkswagen-Skoda, Hyundai-Kia, and VinFast have shown interest in the revised Scheme for Manufacturing of Electric Cars (SMEC).


Elon Musk's planned visit to India in April to meet Prime Minister Narendra Modi and potentially announce Tesla's investment in an EV manufacturing facility was postponed. With Tesla's commitment remaining uncertain, the government is exploring ways to make the EV policy more favorable for established players by allowing investments in facilities that produce both ICE and EVs.


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Elon Musk's planned visit to India in April to meet Prime Minister Narendra Modi and potentially announce Tesla's investment in an EV manufacturing facility was postponed. With Tesla's commitment remaining uncertain, the government is exploring ways to make the EV policy more favorable for established players by allowing investments in facilities that produce both ICE and EVs.


Initially, the SMEC scheme mandated reduced import duties of 15% on fully assembled EVs with a minimum CIF value of $35,000 for five years, provided companies invested at least $500 million in new manufacturing facilities. However, this scheme did not account for past investments in local EV production. Discussions are now underway to modify the scheme to include a backdate for investments in indigenous manufacturing of high-end EVs, making it more attractive to traditional companies.


One proposed modification involves specifying a backdate for investments to include indigenous high-end EV manufacturing. Companies like VinFast, which has committed $500 million over five years to build a new plant in Tamil Nadu, could benefit from these changes. Additionally, established automakers have raised concerns about the high investment amounts required for EV-only facilities, given the limited market for high-end EVs in India. The proposed adjustments aim to address these concerns, making large-scale investments more feasible and ensuring better localization and content accuracy in production.


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