The Minister of Road, Transport & Highways, Nitin Gadkari, recently proposed a tax reduction for hybrid vehicles to 12 percent from the existing 28 percent for sub-4-metre and 43 percent above-4-metre hybrid vehicles, respectively. If the proposed policy is implemented, the ex-showroom prices of the hybrids are likely to come down by 21 percent and TCO will become favourable for hybrids as compared to pure EVs. A recent report by Kotak Institutional Equities states that this incrementally could see OEMs (especially Japanese) accelerate product introductions with strong hybrid technologies, which may hamper EV adoption in the near term.
The Minister highlighted that the proposal would aim to stimulate the adoption of hybrid and electric vehicles in the country, aligning with the government’s broader objectives of promoting sustainable mobility and reducing pollution levels. He also emphasised the need for discussions on this matter at the upcoming GST Council meeting, underscoring the potential industry benefits, decreased imports and environmental gains.
At present, there are five hybrid passenger vehicles available in the country, which include Maruti Suzuki Grand Vitara & Invicto, Toyota Urban Cruiser Hyryder & Innova Hycross and Honda City. For instance, the price of Maruti Suzuki Grand Vitara Alpha (AT), which is currently sold at an ex-showroom price of Rs 17 lakh is likely to come down to Rs 13 lakh. Also, ex-showroom price of Maruti Suzuki Invicto will come down to Rs 20 lakh from Rs 25 lakh.
The report states this means the TCO of Maruti Suzuki Grand Vitara will improve by 18 percent if the proposed policy were to be implemented. Also, the TCO will turn favourable for hybrids when compared to EVs as TCO of the top variant for Grand Vitara will be 12 percent lower than mid-variant of Tata Nexon EV, whereas TCO for Grand Vitara is 3 percent higher than Nexon EV in the current tax regime. Also, we believe that there can be more launches of strong hybrids across segments, which may impact adoption of EVs in the near term given favourable TCO and no charging requirements unlike EVs.
Japanese automaker could benefit
Globally, Japanese and Korean OEMs have hybrid electric offerings, while in India, Japanese OEMs have a few hybrid offerings, placing them in a sweet spot to capitalise on the proposed policy change.
While Hyundai, Kia and Honda have 6-7 HEV offerings in global markets, Toyota leads with 27 HEV offerings. We believe Hyundai and Kia Motors will leverage this opportunity and introduce strong hybrid variants of existing and new models across segments. Maruti Suzuki India aims to bring in more strong hybrid vehicles across existing (Swift, Fronx, Dzire) and new models (Grand Vitara 7-seater) as the company exudes confidence that strong hybrids will account for 25% of overall sales for the company by FY2030E.
Strong hybrid volumes have outpaced pure electric vehicles over the past few months driven by strong demand of hybrid vehicles in the MPV segment due to its fuel efficiency. If the proposed taxation structure is implemented, Kotak Institutional Equities believes hybrid adoption can increase in other segments as well (SUVs, sedan and hatchback). It also expects customers delaying their EV/hybrid purchases as OEMs may progressively prioritise the introduction of hybrid variants for current models and potentially unveiling new models in the coming years. This will definitely impact pure electric vehicle sales in the near term and there can be increase in competitive intensity as Tata Motors and Mahindra & Mahindra (focusing on pure EVs) may resort to further price cuts (including passing on the benefits of PLI to end-consumers) to drive sales for pure EVs.
