Foreign car firms eye trade deals for EV tariff reduction

Mint

07-05-2025

In March 2024, foreign carmakers took note when India proposed low-duty imports for a few thousand electric cars, if they promised to invest a specific amount here. But with the Centre yet to finalize the scheme's guidelines, manufacturers have shifted their sights to expected duty reductions in free trade agreements (FTAs) under discussion, three industry executives said.
The Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), dubbed the 'Tesla Policy', was seen as part of New Delhi's attempt to attract the US carmaker after its CEO Elon Musk publicly criticized the country's high import duties on automobiles.
Under the scheme, approved car makers were to be allowed to import up to 8,000 electric vehicles (EVs) a year at 15% duty against the usual 70-110% tariff on the import of fully made cars, which are called completely built units (CBUs).
The concession was contingent upon minimum investments worth
₹
4,150 crore. Tesla, the Volkswagen Group, Hyundai Motor India Ltd, Toyota Kirloskar and Vietnam's Vinfast were among entities who were previously reported to be interested in the scheme.
'There hasn't been much movement on the manufacturing scheme by the government," one of the executives cited above, who works with a foreign carmaker interested in the EV scheme, said on condition of anonymity. 'The talks of India with the US on auto imports give us hope that there is going to be a broader reduction of tariffs on CBUs."
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In a statement to
Mint
on 6 May, Hyundai India said the government is discussing a programme with the industry to roll out a programme for widespread EV manufacturing and adoption. 'HMIL has been making in India for the past nearly three decades and welcomes any step to promote local manufacturing that offers innovative and safe mobility solutions to people and job creation," a spokesperson said. 'We await the rollout of the final policy and guidelines."
Emailed queries to Volkswagen Group, Tesla, Toyota, Vinfast and the heavy industries ministry remained unanswered.
Tesla has been vocal about its concerns on the tariffs on EVs. 'The same car which we're sending is 100% more expensive than what it is. So, that creates a lot of anxiety. People feel OK, they're paying too much for the car ...That's why we've been very careful trying to figure out when is the right time (to enter India)," Tesla's chief financial officer Vaibhav Taneja said during an earnings call in April.
While Tesla's entry is still anticipated, the company has not pledged any investment in making a plant in the country. Last month, Musk spoke with Prime Minister Narendra Modi over 'potential collaboration in the areas of technology and innovation".
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'India has to relax its tariff norms to allow more foreign cars to come in as the electric car market has not grown at a pace which was anticipated," the executive quoted above said.
In 2024, India's electric car market grew by 20% to reach nearly 100,000 units as per Vahan portal data. However, these cars still account for just 2.5% of the overall numbers.
Thanks to US President Donald Trump, talks for trade agreements seem to have accelerated. Earlier,
Mint
had reported that the government is also open to tweaking the EV policy based on the outcomes of bilateral trade agreement and free trade agreement talks.
Currently, India is in talks with the US, the European Union and other countries for possible trade agreements.
On Tuesday, India concluded a long-awaited trade agreement with the UK, which mentions that India has agreed to reduce automotive tariffs 'from over 100% to 10% under a quota".
Experts, though, are sceptical about the trade agreement route being a viable option for EV makers. 'For foreign carmakers, it is important to look at setting up manufacturing facilities in India if there is ambition to scale in the country," said Abhishek Saxena, earlier a public expert at Niti Aayog. 'While there are hopes of tariff reductions due to trade agreements, these are complex conversations."
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'Pinning hopes on a uniform tariff reduction might not be the best option. Given the strict deadlines for value addition and approvals, the foreign carmakers may have apprehensions about the EV manufacturing scheme," he said.
Meanwhile, India's biggest car maker Maruti Suzuki Ltd has been sceptical about the growth of EVs unless the concerns over charging infrastructure and resale value are resolved. Due to the limited scope of growth in the domestic market, Maruti has been looking at international markets closely.
A majority of the electric cars produced by the car maker this year will be exported due to the limited scope of growth in the Indian market. 'Until the number of people who can buy cars increases substantially, there will not be much growth in any kind of cars," R.C. Bhargava, chairman of Maruti Suzuki India Ltd, warned in an earnings call.
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