As Elon Musk’s Tesla is not yet connected to India, the government plans changes to its new electric vehicle policy; the tweaks could benefit traditional carmakers

New EV policy changes in the works: The Indian government is considering changes to its recently introduced electric vehicle (EV) policy to provide incentives to carmakers that have already invested in the country, according to sources familiar with the matter. The development comes as Tesla Inc., a U.S. electric carmaker, has not yet made a firm commitment to set up a factory in India. The current policy only supports new investments to accelerate local production of high-end electric cars.

According to an ET report, automakers have raised two major concerns: first, that the scheme should take into account existing investments and second, that it should include plants that make both petrol and diesel cars, along with electric vehicles, given the small share of electric vehicles in the Indian passenger vehicle market, which does not justify large investments. No automaker has yet made an official comment on participating in the electric vehicle scheme since it was announced on March 15.

Discussions are also underway with stakeholders on another critical issue affecting carmakers. The government could potentially consider investments in plants that produce both internal combustion engines and electric vehicles as eligible for incentives to scale up and make large investments profitable for carmakers, according to sources cited by the financial daily.

Electric vehicle sales are racing ahead

Several automakers, including Volkswagen-Skoda, Hyundai-Kia and VinFast, have expressed interest in the new policy, known as the SMEC (Single-Scale Electric Vehicle Production Program).

Tesla CEO Elon Musk had planned to visit India in April to meet with Prime Minister Narendra Modi, government officials and space technology executives. During the trip, Musk was to announce Tesla’s intention to set up an electric vehicle manufacturing plant in India. But he abruptly postponed the visit.

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According to the source, given the unlikely commitment of the US automaker to build a local plant in the near future, discussions are underway with industry stakeholders to make the program more affordable for established players. These discussions could include allowing investments in plants that produce both combustion engine vehicles and electric vehicles.

SMEC is offering reduced import duties of 15% on fully assembled electric vehicles with a minimum CIF value of $35,000. This relief is available for a period of five years, provided that companies invest at least $500 million in setting up new manufacturing facilities in the country.

Initially, the SMEC program mandated that only companies investing in new EV plants within three years of receiving government approval would receive incentives. The program did not include retrospective investment in local EV production.

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According to a senior official, discussions are underway to make the scheme more attractive to traditional companies as well. One of the proposed changes is to backdate investment in domestic production of high-end electric vehicles. This change would enable companies like VinFast, which has already started setting up a new plant in Tamil Nadu and has committed to invest $500 million over five years in India, to qualify for incentives under SMEC.

Another official said some established companies interested in the scheme have expressed concerns about the specific amount of investment in pure EV facilities. The market for high-end electric vehicles, priced above Rs 25 lakh, is very limited in India. To commit an investment of Rs 4,000 crore, companies need scale, which is limited to Rs 25 lakh crore in the Indian market.

The decision to limit SMEC to greenfield EV plants was primarily aimed at accurately assessing the localization of content by companies. Under the current scheme, companies must produce electric cars with 25% local content, increasing it to 50% by year five. Automakers and component makers will have to calculate domestic value added (DVA) across their supply chain and submit that data to vehicle testing agencies for assessment.

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