New Delhi: There is more to India’s new electric vehicle policy than just wooing Tesla to set up shop here, according to top sources in the automotive industry.
“Keep in mind that the process of signing free trade agreements has already kicked off. What has begun with a handful of European countries will soon include many more, including an FTA with the UK in due course of time,” a senior executive of a prominent carmaker told ET Auto.
Once this happens, big global auto brands would have a “terrific reason” to manufacture EVs in India which could then be exported across Europe and the UK. The likes of Ford, Jaguar Land Rover, Skoda, Volkswagen, Mercedes-Benz and others will be tempted to make the most of the fiscal incentives in the EV policy and then go flat out to strive for scale.
These brands will also leverage the “tremendous competencies” that India has to offer in terms of its IT skills along with the manufacturing capabilities of its supplier base. Localisation is the key in meeting economies of scale and here is where all these strengths will come in handy, sources said.
Tata Motors and JLR
“For instance, JLR could have a compelling reason to look at India as its production base for EVs once a trade pact is in place with Britain,” continued the executive. If everything is in place, its owner, Tata Motors, will then pull out all the stops to ensure that this is made a reality.
In fact, speculation is rife within auto industry circles that it is perhaps for this reason that the company recently announced its intent to set up a plant in Tamil Nadu at an investment of INR 9,000 crore. The state government, in turn, was quick to make this a pitch for its potential as an investment destination, more so when it had bagged an INR 16,000 crore mandate from VinFast of Vietnam to make EVs at a new plant in Thoothukudi.
“Both Tata Motors and VinFast can use the new EV policy to push for their growth plans which will include substantial exports,” added another industry official.
According to him, Ford will also be keen to capitalise on the opportunity while awaiting some positive news on a larger FTA with Europe. This puts in context why it shelved its plans to sell the Chennai plant to the JSW group since it would be keen to restart operations here with an eye on EV exports.
Right now, India’s FTAs with Europe are confined to four non-EU nations: Switzerland, Norway, Iceland and Liechtenstein but the process could well gain momentum in the coming months. As observers say, the world is hurtling towards a period of greater volatility with a host of countries, including India, heading for elections.
Stiffer import barriers
“Political upheavals are inevitable and it will be interesting to see what happens in powerful nations like the US where Donald Trump could well make a comeback as President,” they add. What this will imply in terms of more stringent import barriers and hefty trade tariffs, especially with China, remains to be seen.
For now, there is no question that China is “miles ahead” when it comes to EVs not only in numbers but also in sourcing raw materials at competitive costs. India still has a long way to go in catching up but is also aware that the auto industry is getting increasingly wary of China thanks to its relentless focus on building its local brands and seeking global leadership.
BYD, for instance, is rapidly catching up with Tesla in the EV arena and it is quite likely that it will emerge the top selling brand this calendar. BYD is already the leading player in China which is testimony to the country’s rapid transition towards EVs. Its buyers are affluent and ready to spend more so long as the product fits their needs.
The Shanghai Auto Show of 2023 was also a clear indicator of China’s strengths in the EV space with a host of startups ready to throw their hats into the while while huge technology brands like Xiaomi are due to launch their products in the coming weeks.
It is this growing clout of China that is worrying automakers in the West and this in turn has prompted some of their CEOs to seek import duty tariffs on EVs imported from the country. Europe is only too aware that it cannot meet the cost structure of China’s EVs which have a lot more to offer in terms of smart features that will appeal to a younger generation of buyers.
China paranoia
India knows only too well that it does not have the might of China in EVs but its policymakers equally understand that there is an opportunity to attract top brands from the West in its electrification drive. “When there is so much paranoia about China across Europe and the US, India would be perceived as a good alternative for these countries so long as it makes financial sense to manufacture EVs,” said an official of a leading OEM.
Here is where FTAs will complement the new EV policy and a freer exchange of products and parts will “in a sense insulate the Chinese impact to an extent”. It will still not stop the world’s leading car producer and exporter from shipping out its EVs to Latin America, Asia and Africa where customers will be more than delighted to get a brand loaded with the latest gizmos at an affordable price.
India will, therefore, need to think of something different in order to stay relevant and this is where the EV policy is seen as a step in the right direction followed by FTAs with strategic countries. The Centre is clearly in a hurry to follow this through which explains why it was introduced just before the election dates were announced.
If the ruling BJP comes back to power, sources say the EV policy will be put on the fast track from June along with the signing of more FTAs in the months that follow. Both India Inc and the global investor community will be watching the landscape with a great deal of interest since continuity in policy is integral to their business plans.
