New EV Policy To Give Imported Cars Advantage Over Indian Vehicles, Says HSBC

This is particularly problematic given the 43-50% GST and 13% road tax applied to locally manufactured internal combustion engine passenger vehicles, resulting in a total tax burden of 55-60%, HSBC said.

While the policy limits imports to 8,000 units annually for EVs priced above $35,000, and mandates significant investment and domestic value addition, the substantial tax disparity raises concerns about long-term investment by Indian ICE carmakers, HSBC said.

It highlighted the recent correction in passenger vehicle stock prices, notably Mahindra & Mahindra Ltd., reflecting market anxieties about this policy.

The new EV policy reportedly allows for reduced import duties contingent on a $500 million investment, local manufacturing within three years, and progressive domestic value addition. However, HSBC argues that this investment requirement is relatively modest, compared to domestic companies' capital expenditure, citing M&M's $1.45 billion EV-focused capex for these three years.

The firm acknowledged the government's push for EV adoption, which justifies lower taxes on domestic EVs. However, offering significantly lower taxes for imported EVs than domestic ICE vehicles will negatively impact domestic carmakers, according to it.

While the 8,000-unit import cap mitigates some concerns, the long-term effects on the Indian automotive industry remain uncertain. Hyundai Motors India Ltd. may benefit from importing some EVs at lower prices under this policy, HSBC said.

It maintains that India will remain a "multi-powertrain market" in the medium term.

The Modi government is likely to notify the tweaked EV policy in mid-March after the deliberations are complete, following which, applications will be invited, NDTV Profit reported previously. The approvals are likely by August, which will pave the way for imports to begin soon after.

The deliberations come against the backdrop of Tesla’s likely entry into India, following a meeting between Chief Executive Officer Elon Musk and Prime Minister Narendra Modi earlier in February.