Government approves E- Vehicle policy to promote India as a manufacturing destination for EVs

Major Takeaways:

Minimum Investment Rs 4150 Cr required with no cap on maximum Investment.

3 years timeline for setting up manufacturing facilities in India, and start commercial production of EVs.

50% domestic value addition to be reached within 5 years at the maximum.
Companies setting up manufacturing facilities for EVs to be allowed limited imports of cars at lower custom duty.

The Union Government has sanctioned a scheme aimed at positioning India as a prime manufacturing hub of Electric Vehicles (EV), specifically targeting the production of e-vehicles (EVs) equipped with cutting-edge technology within the country. This policy is strategically crafted to entice investments from renowned global EV manufacturers like Tesla or other multinational EV manufactures  to into  Indian market.

Such an initiative promises to grant Indian consumers access to state-of-the-art technology, thereby bolstering the Make in India campaign. Furthermore, it seeks to fortify the EV ecosystem by fostering healthy competition among industry players, consequently driving up production volumes and achieving economies of scale. This, in turn, is anticipated to lower production costs, diminish reliance on imported crude oil, mitigate trade deficits, and curtail air pollution levels, particularly in urban areas, thus yielding favorable outcomes for public health and the environment.

The policy delineates the following key provisions: –

• Minimum Investment required: Rs 4150 Cr (∼USD 500 Million) without any upper investment limit.
• Timeline for manufacturing: 3 years for setting up manufacturing facilities in India, and to start commercial production of e- vehicles, and reach 50% domestic value addition (DVA) within 5 years at the maximum.
• Domestic value addition (DVA) during manufacturing:A localization level of 25% by the 3^rd year and 50% by the 5^th year will have to be achieved.

 Other Relaxations & Conditions under the Policy:

• The customs duty of 15% (as applicable to CKD units) would be applicable on vehicle of minimum CIF value of USD 35,000 and above for a total period of 5 years subject to the manufacturer setting up manufacturing facilities in India within a 3-year period.
• The duty foregone on the total number of EV allowed for import would be limited to the investment made or ₹6484 Cr (equal to incentive under PLI scheme) whichever is lower. A maximum of 40,000 EVs at the rate of not more than 8,000 per year would be permissible if the investment is of USD 800 Mn or more. The carryover of unutilized annual import limits would be permitted.
• The Investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone.
• The Bank guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines