Auto industry experts explain what the new electric vehicle policy means for companies in India

The government has approved a new electric vehicle (EV) manufacturing policy to attract global players like Tesla and VinFast. The policy will see import duty cut by up to 75%. The new policy requires EV companies to invest a minimum of ₹4,150 crore and the companies must also set up a production facility within three years.

CNBC-TV18, spoke to Pawan Goenka, former MD, M&M, and Arun Malhotra, auto industry expert who shared their insights on the latest development.

Goenka: I want to start off with a couple of disclaimers. As you know I work for the government so I want to make it clear that whatever I am saying on this policy are my personal views. I have no insights into the thinking behind the policy. And just like many people had given their opinion I had also given my opinion on it. But beyond that, I have had no influence on it. So let me come back to the policy. I think it's a fairly aggressive move that the government has made and there may be arguments on both sides on whether it is too much or too little.

But I would put two considerations in place. One is that the government has been really pushing electric vehicles for the last 5-6 years very aggressively. While we have had good progress in three-wheelers, decent progress in two-wheelers, but in passenger vehicles, the needle really hasn't moved.  We have only reached about 2% when the world is at 15% plus of EV penetration, and therefore, something big had to be done.

I think in many ways, this probably is the step that's going to accelerate the adoption of passenger vehicles in electric in India. If you get two to three Greenfield plants, because of this, half a billion dollar each plant, I think we will start seeing a lot more EV penetration.

We should also say that the government has put enough guardrails in terms of minimum investment required, in terms of maximum volume that can be sold, in terms of maximum reduction that can happen and duty and therefore, it's a fair good balance of giving a very good incentive of 15% coming in at CBU (completely built up), at the same time requiring a significant amount of investment and putting a constraint on what can happen.

Therefore, I think it's a balanced move, it should be good enough for the new incumbents to come in and try and establish a plant here, not just to sell in India, but hopefully, to export from India. I think the price level is high enough that the current incumbents should not really feel too much of pressure. Even if they get into this price range, don't undermine what they can do with their technology and with their cost base.

Q: Your thoughts on the localisation target, which has been said 25% in three years and 50% of a domestic value addition in five years? Will that be a deterrent, will that be easily achieved by the players who come in?

Malhotra: I wouldn’t call it a deterrent because three years is quite a big time and the push of the government in production linked incentive in advanced cell chemistry and also some extent FAME (Faster Adoption and Manufacturing of Electric Vehicles) policy that will help it and you already have investments in semiconductors. So, for a large corporation that is serious about EV, I don't think it'll be that as big a challenge. Although it is a task they have to focus on.

Goenka: I think it could rise. First of all, let me state that the big sort of government subsidy cannot remain forever and the industry has to get used to sort of reducing the amount of FAME benefit or reducing the amount of PLI (product linked incentive) benefit which, of course, is for a limited period of time. The industry has to work on lowering the cost and being able to sell at the same price with a lower government incentive. Now what's changing in the two-wheeler is that scale is coming in and with the scale coming in, more and more localisation will happen and the prices and cost will therefore come down and hence the industry will be able to support even with lower incentive of FAME, the same price point that we have that's one change that's happening.

The second change that's happening is that the bigger players are now coming in more aggressively in the electric two-wheeler segment. I have seen in Bharat Mobility show the kind of products that are being displayed with the traditional two-wheeler players, very good products, and I am sure they will be able to come up with a very good price point also. So given these two things, I think we will see a significant increase in the two-wheeler penetration over the next two to three years. I don't think that the two-wheeler sector will depend so much on the government incentive as it has been in the past.

Malhotra: One of the challenges that Dr Goenka said is now most of the legacy players are increasingly getting into it, and there is more also awareness around it. But I think one of the biggest challenges in the two-wheelers is that the motorcycle market which in two-wheelers contributes two-thirds of the market, we have hardly any presence in motorcycles as far as EV two-wheelers are concerned.

Of the two-wheelers the EV which we are selling, I mean we sell about 80,000 a month hardly it will be 1,000 a month. So there's something that needs to be done. One of the reasons for this was that, for the FAME benefit, we kept a cap of ₹1.5 lakh, which has to be the expected price. And somehow, designing and developing a motorcycle at that price point was just not possible. That's why it has not happened. So, if we have to penetrate rural, we have to penetrate motorcycles, there has to be some special focus on motorcycles. Otherwise, we may go up, but it is like saying if you are only tapping one-third of the market. The penetration can't go more than 10-15%. That is the way I see it.