Govt Likely to Change Domestic Value Edition Guidelines of EV Manufacturing Policy

Amid the lukewarm response to India’s EV manufacturing policy that allows automakers to import certain electric cars at a reduced import duty, and consequently with Tesla not committing to enter India, the government is now considering some changes in the proposed domestic value addition (DVA) criteria and the minimum value for imported vehicles in the scheme, sources said. This is aimed at making the policy more attractive. A new set of updated guidelines is expected to be introduced within a month.

In 2024, the government unveiled the Scheme for Promoting the Manufacturing of Electric Passenger Cars in India (SMEC) that proposed to drastically reduce the import duty on certain electric cars to 15% from the current 70-100% for five years, provided OEMs invest at least Rs 4,150 crore, or $500 million, to Make in India within three years, and achieve a 25% DVA within three years and further increase it to 50% by the fifth year. However, the policy’s operational guidelines are yet to be finalised amid a lukewarm response from OEMs.

According to sources familiar with the matter, one of the key changes being considered in the guidelines of SMEC is an extension in the period for meeting the DVA target. The proposed adjustment would extend the timeline for the 50% DVA target to over seven years from the issuance of the letter of approval by the Ministry of Heavy Industries (MHI), as opposed to the current five-year timeline.

DVA refers to the share of manufacturing value added to the total bill of materials for an EV passenger car. The extension in the DVA target timeline is expected to ease the pressure on manufacturers to build a robust supplier ecosystem from the outset, particularly in the early years of operation when the latent demand for electric vehicles is still unclear.

Currently, the scheme has proposed that electric passenger cars can initially be imported with a minimum CIF (cost, insurance, and freight) value of $35,000, at a duty rate of 15% percent for 5 years against the conventional import tariff rates, which range from 70% to 100%. Sources say that the government is also exploring the option of reducing the minimum CIF value of imported cars to allow more electric cars into India.

The scheme caps the maximum duty foregone per applicant at Rs 6,484 crore, which sets a limit on the number of vehicles that can benefit from the concessional tariff. Under the current CIF value of $35,000 per vehicle, the maximum number of units that could be imported under the concessional tariff is 25,974.

If the minimum CIF value is to be reduced to $30,000, the number of cars that could be imported at the concessional rate would rise to approximately 30,000 units. Further reducing the CIF value to $25,000 would enable the importation of around 36,363 vehicles—an increase of nearly 10,000 units, compared to the current $30,000 threshold.

The new set of guidelines under the SMEC are expected to be unveiled within the next 20 to 30 days, sources said. This adjustment would have the potential to make more electric vehicle models available to Indian consumers and stimulate demand and competition, particularly in the early stages of market development.

The anticipated modifications are expected to be particularly favorable for US-based electric vehicle manufacturers, such as Tesla, which has posted job ads for 13 mid-level roles in India, including some store and customer relationship managers, and has reported secured showroom space.

Currently, the penetration of battery electric vehicles in India’s passenger vehicle segment is around 2.4%, a stark contrast to the global EV penetration rate of 12%, with China reaching an impressive 40%. Over the past few months, India has seen a monthly average of 5,500 to 8,000 electric cars sold, with an average selling price of around $14,000 per vehicle.

While these numbers indicate the huge potential for growth in the EV sector, they also underscore the challenges that lie ahead for both manufacturers and consumers in terms of affordability, infrastructure, and market demand.

Despite these efforts, the path to widespread EV adoption in India remains fraught with challenges. The government’s efforts to enhance the policy framework and incentivize manufacturers to establish a local presence are crucial steps in accelerating the growth of the sector.

However, the success of these measures will depend not only on the government’s ability to refine and implement its policies but also on the industry’s capacity to develop the necessary infrastructure, create an affordable product offering, and build consumer confidence in electric vehicles.