India's New EV Policy Presents At Least $2.1-Billion Localisation Opportunity

India’s new EV policy presents an at least $2.1-billion localisation opportunity for domestic component makers, bolstering the electric mobility ecosystem in the world’s third largest automobile market.

“The (new) EV policy indicates a wish fulfilment for ACMA (Automotive Component Manufacturers Association of India) in terms of localisation. Volumes up means localisation is also up,” Ravi Bhatia, president and director at Jato Dynamics—a Mumbai-based automotive research firm—told NDTV Profit, even as he delved into the math of local sourcing.

Global electric carmakers, which invest at least $500 million (about Rs 4,150 crore) to set up local manufacturing operations, will enjoy a reduced customs duty of 15% on imports of their electric cars for the first five years, as against 70-100% at present, according to a gazette notification on March 15. The minimum CIF (cost, insurance and freight) of the electric car must not exceed $35,000 (about Rs 29 lakh). A carmaker can import 8,000 such electric cars annually.

And while the facility has to go onstream in three years, it has to achieve 25% localisation over the same time and 50% by year five.

“The market will respond to 24,000 electric cars coming in immediately, from the likes of Tesla, Byd and VinFast,” Bhatia said. “Add to that the contribution of luxury carmakers, and we are talking about 40,000 electric cars imported annually, each costing less than $35,000.”

These cars on day one will be completely built-up units (CBU), Bhatia said. The companies will then start localising them at the rate of 10% every year—semi knocked-down (SKD) to completely knocked down (CKD). “If they could fully make cars at the outset, what would be the need for the policy in the first place?”

Back of the envelope calculations show that 50% localisation of 40,000 cars, costing $35,000 each in the fifth year, translates to $700 million in domestic accruals, Bhatia said. Over a five-year period, the amount inflates to $2.1 billion—accounting for a 10% increase in localisation every year.

“Achieving 25% localisation shouldn’t be a problem. Getting to 50% in five years can be a little tricky,” Bhatia told NDTV Profit over a telephonic interview.

The components that will get localised first are those common with fossil-fueled cars—car seats, glass panels, infotainment systems, etc. Semiconductors and battery packs are next as several plans are afoot to wean India’s EV industry away from Chinese imports, followed by electronic control units (ECUs) and some charging infrastructure.

It’s the electric powertrains and motors that will get domesticated last.

According to Gaurav Vangaal, principal analyst at S&P Global Mobility, the requirement of 50% localisation by the fifth year plays into the hands of India’s $70-billion auto parts industry.

“India already has a well-entrenched auto suppliers ecosystem that can scale swiftly once global carmakers come in,” Vangaal said. “They can forge new partnerships to tap into the sophisticated EV technologies, as well as scale up to export along with the carmakers they partner.”

Component manufacturers are happy, according to a government official, who spoke on the condition of anonymity.

The new policy expands the market, puts more electric vehicles on the road, and creates a market for their components, the official told NDTV Profit. The auto ancillaries have no doubts at all about this and established companies which had doubts are now onboard, as their doubts have been taken care of, the person said.

At first glance, and according to analysts, there are some clear winners from India’s new EV policy in the auto ancillaries space.

For a company that traces its roots to a joint venture of India’s Sona Group and Japan’s Mitsubishi Materials, Sona Comstar has come a long way—so much so, it topped Nikkei Mobility’s list of competitive Indian auto suppliers released in February.

General Motors Co., which makes America’s most affordable electric car; and Ford Motor Co., which retails a battery-powered variant of America’s best-selling pickup truck of 40 years, are among Sona Comstar’s biggest clients. The company derives more than 40% of its revenue from the U.S. market. 

In May 2023, Sona Comstar—which makes gears, motors and powertrain components for both ICE and electric cars—signed a technology agreement with U.K.’s Equipmake to source high-performance EV powertrains for vehicles of all shapes and sizes. Later during that year, the company raised the capital expenditure for its EV business to Rs 1,200 crore over the next three years.

As on Dec. 31, the company had an order book of Rs 24,000 crore—its highest ever due to five EV programme wins. The top line grew 13% year-on-year to Rs 777 crore in the fiscal third quarter, even as EV revenue alone rose 28%. About 30% of the company’s income now comes from its electric mobility business.

The company’s management welcomed the new EV policy.

“The approval of the new e-vehicle policy marks a pivotal moment in our nation's mobility landscape,” Sunjay Kapur, chairman of Sona Comstar, said in a statement to NDTV Profit. “With a minimum investment threshold and a clear roadmap for domestic value addition, the policy underscores the government's commitment to nurturing a robust EV ecosystem.”

That Samvardhana Motherson International Ltd. doesn’t make any engine parts actually works to its advantage, for the first wave of localisation under India’s new EV policy will come from components that are common with “traditional” cars. 

The maker of car interiors and exteriors already derives more than a fifth of its revenue from its EV business, even as 80% of the top line comes from global operations. As of November last year, the company had an EV order book of $17 billion—or 22% of its overall order book of $77 billion.

The company clientele is diversified, though its biggest customers include the likes of Audi and Mercedes-Benz. That plonks the Noida-based auto ancillary in yet another sweet spot, that of luxury electric cars which will push into India once the new EV policy comes into effect.

In the quarter ended Dec. 31, Samvardhana Motherson had a consolidated revenue of Rs 25,700 crore—up 27% year-on-year—even as operational profitability grew 47% over the year-ago period to Rs 23,700 crore.

“Sona BLW Forgings and Samvardhana Motherson stand to gain (from India’s new EV policy) as they are already suppliers to global EV makers,” Elara Capital wrote in a March 18 note.

“In the likelihood that some share of China EV manufacturing shifts to India, these suppliers stand to benefit… This also gives an opportunity to domestic PV suppliers to get exposure to global EV players for powertrain neutral components such as Uno Minda Ltd.”

Still, demand for electric cars will take some time to pick up. EV penetration remains limited—electric cars make up a little over 2% of car sales in India and are estimated at 30% by 2030—but are growing at 35-40% on a small base.

ACMA, however, is confident of an immediate pick-up for auto ancillaries.

“The (new EV) policy not only aims to attract global EV majors to invest in India but also emphasises a significant domestic value addition criteria, ensuring the creation of a robust supply-side ecosystem,” ACMA President Shradha Suri Marwah said in a statement. “This policy sets the stage for a vibrant future-mobility global manufacturing hub in India.”