All Incentives to Use Hybrids Are Misguided, Auto News, ET Auto

Hybrid vehicles.

New Delhi: As the auto industry debates the best strategy for achieving carbon neutrality, there are ongoing debates about whether subsidies should support HEVs alongside electric vehicles (EVs). EV advocates argue that subsidies should be directed exclusively to EVs, which offer a more efficient path to zero emissions compared to hybrids.

While hybrids can help meet Corporate Average Fuel Efficiency (CAFE) standards, they still rely on fossil fuels. Electric vehicles, on the other hand, have no tailpipe emissions, making them a cleaner option. Given the urgent need for green mobility, many industry experts believe that investments should prioritize electric vehicle technology over hybrids.

According to a recent ICCT report, the shift towards greater adoption of electric passenger cars could positively impact the entire EV ecosystem. Increased adoption will drive battery production, which will lead to lower EV battery prices and further accelerate EV adoption.

One industry executive points out that promoting old technology like hybrids alongside electric vehicles will confuse customers and change the focus. “If our national priority is zero-emission mobility, and the technology is there, why promote a technology like hybrids that will never be clean and zero-emission?” the executive argues.

Heavy Industries Minister HD Kumaraswamy recently mentioned that an inter-ministerial group is reviewing the first two phases of the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) programme. The third phase is expected in the next two months.

The FAME scheme, introduced in 2015, aimed at increasing localisation of electric vehicle manufacturing. Its second phase, extended till March 2024 with an additional INR 1,500 crore, will be replaced by the third phase, replacing the Electric Mobility Promotion Scheme (EMPS) 2024.

India currently levies a 5% GST on EVs compared to over 48% on ICE and hybrid vehicles (adding other state taxes). Amitabh Kant, G20 Sherpa and former CEO of NITI Aayog, stressed that the tax structure is designed to encourage battery production and further electrification.

Automakers like Tata Motors, Hyundai and Kia are pushing for the adoption of electric vehicles, while Japanese manufacturers like Maruti Suzuki, Toyota Kirloskar and Honda are advocating for hybrid tax cuts. Hybrids, which include mild/power hybrids and plug-in hybrid electric vehicles (PHEVs), offer varying levels of efficiency but do not match the zero-emission potential of electric vehicles.

Hybrids face no barriers to mainstream customer adoption or manufacturer profitability gaps, making the case for providing any incentives weak. Moreover, their sales are growing and OEMs are seeing better margins with them.

For example, Toyota Kirloskar Motors, which sells the Hyryder and Hycross, has seen a drastic improvement in all key financial metrics. As per data on the Ministry of Corporate Affairs portal, the company’s PAT has increased by 242% year-on-year and EBITDA by 163%, driven by demand for its hybrid model range and an increase in the overall number of models thanks to a global tie-up with an OEM partner.

According to data from Jato Dynamics India, sales of hybrid cars, both power and plug-in versions, grew by 27% from January to July 2024 to 51,897 units as compared to 40,811 units during the same period last year.

Uttar Pradesh recently scrapped registration fees for powerful hybrids and PHEVs, a move that other states have not followed. Despite being the state’s second-largest car market after Maharashtra, hybrids account for less than 1% of vehicle sales in the state.

The ICCT report highlights that a stable, long-term EV policy could benefit both the demand and supply sides of the market. Government support would reduce consumer skepticism, facilitate fleet transitions and stimulate private sector investment, supporting the growth of domestic supply chains and job creation.

In summary, prioritizing EV subsidies over hybrid incentives is consistent with the broader goal of achieving a carbon-neutral transport sector. Investing in EVs provides a more direct path to eliminating emissions and moving towards sustainable mobility.