Over the past year, three of the world’s top electric carmakers have announced their India entry plans. The policy response of the Indian government has been different in each case: potential tweaks in tax norms to accommodate the American company Tesla; clear disincentives for China’s BYD; routing of the proposal through the regular dispensation for VinFast of Vietnam, which now seeks sops on a par with the package being worked out for Tesla.
India is pushing for rapid adoption of electric vehicles, with a focus on replacing petrol/ diesel vehicles with battery EVs. Here is how the three proposals have progressed.
Tesla’s market entry plans
Elon Musk’s company is learnt to be in talks with the government to finalise a package of incentives that could include lower import duties for EVs for at least a couple of years in return for guaranteed financial commitment of around $2 billion in a proposed EV facility in India.
Lobbying for lower duties is a market entry strategy employed by Tesla in other geographies as well, and comes after the Union government had turned down an earlier demand for import duty cuts, leading the Texas-based company to shelve its India debut plans in mid-2022.
Details of the renegotiated deal are not known, but the government seems to have changed its earlier stance that it would not discuss import duty cuts as a precondition, and that tax cuts could be offered only as part of a larger package that would apply to all companies.
This is seen as even more crucial given that India is negotiating free trade agreements with other countries and trading blocs, including the European Union and the United Kingdom, which have a competitive car manufacturing sector, and negotiations include a demand for lowering import duties.
In 2021, Tesla had written to nodal central ministries seeking a reduction in import duties on fully assembled cars. Currently, the customs duty on cars imported as completely built units (CBUs) is 60% or 100%, depending on engine size and whether the cost, insurance, and freight (CIF) value is higher or lower than $40,000. Where the car costs $40,000 or more, the duty is 100%; a cheaper car attracts 60%. Tesla had asked for these duties to be cut to 40-15% depending on the price.
VinFast manufacturing plans
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On Sunday, VinFast Auto, a part of Vingroup, the largest private corporation in Vietnam, began the groundwork for its proposed integrated EV manufacturing site in Thoothukudi, Tamil Nadu. The project entails an intended commitment of up to $2 billion, with an intended commitment of $500 million for the first five years. This is a major landmark in VinFast’s global expansion strategy, and marks its entry into India.
VinFast came through the existing route — in which EVs are eligible for a significant GST incentive — without seeking any upfront import duty concessions as a precondition. But with incentives being discussed for Tesla, VinFast on Sunday asked the government to reduce import duties on its cars for about two years so that potential customers get familiar with its products while a local manufacturing plant comes onstream, the company’s India CEO Pham Sanh Chau said.
VinFast’s demand is in line with what is said to be under discussion for Tesla.
Struggles of BYD Auto
BYD Auto, which started out as a cell phone battery maker and continues to have strong backward integration into the battery value chain while diversifying into automaking, sold 5,26,409 EVs globally in the final quarter of last year, more than Tesla’s sales of 4,84,507 units.
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BYD has a presence in more than 70 countries on six continents, and has established itself as a key player in the global new energy sector. The Chinese carmaker was listed among the global top 10 in car sales in 2023, with 3.02 million units sold that year.
In July last year, the Centre is reported to have turned down BYD’s proposal to build a $1 billion EV plant in partnership with Hyderabad-based Megha Engineering and Infrastructures Ltd. The rejection was likely on “national security” grounds, although an official confirmation was not available, and the companies did not comment.
However, the move was in line with blockades and restrictions placed on other Chinese carmakers: Great Wall Motor Company failed in an attempt to buy General Motors’ shuttered plant, while SAIC Motor Corp’s local unit MG Motor India Pvt was investigated for alleged financial irregularities. MG has since started the process of diluting its 100% share of the business.
What Indian policymakers seem to be overlooked is that BYD is a leader in battery technology. In 2020, it launched a “blade battery” based on lithium iron phosphate (LFP) chemistry which cost less than the lithium ion batteries used in EVs, and was more compact and safer. Toyota is among the companies that have tied up with BYD for battery supplies.
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“From a strategic point of view, it does make sense for India to tap a technology leader such as BYD, irrespective of whether it’s Chinese. In a partnership with an Indian company, there can always be a precondition of tech transfer, a provision that Chinese automakers and EV companies have exploited in their startup phase,” an official involved in discussions told The Indian Express.
