Listen to Tesla, Hyundai on duties: Some duty relief for a temporary period would be a nice gesture & benefit India in long run

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July 29, 2021 5:30 AM

Investors like Tesla can make a big difference to the ecosystem, and if the government is serious about the environment and promoting clean energy, it should be willing to give up some revenue.

Kim’s case is that companies need time to localise production of components and, until then, imports could help generate some demand for EVs.Kim’s case is that companies need time to localise production of components and, until then, imports could help generate some demand for EVs.

Tesla CEO Elon Musk seems to have set the cat among the pigeons with his request for India to lower import tariff for EVs, which he says are ‘the highest in the world’. Musk has more than hinted Tesla might consider an assembly line in India if the exports do well. The Tesla chief’s request has been endorsed by Hyundai Motor India MD & CEO SS Kim, who believes import-duty cuts on completely built units (CBUs) would help OEMs achieve some scale in what is a price-competitive segment.

Local manufacturers, however, are understandably anxious, arguing it is patently unfair to lower import duties when the government expects them to meet high standards for localisation. They have a point, except that Tesla’s cars are likely to be in the ultra-premium range and should not pose any threat to a Tata Motors or a Maruti Suzuki. In fact, given Ola Cabs is readying to roll out electric three-wheelers from Krishnagiri, it is not clear how that pitch will be queered by a Tesla or even a Hyundai. It is not as though imports, for a limited period, are in any way going to impact local production, which caters for an altogether different segment of customers.

To be sure, MNCs are always looking for a bargain and, therefore, the government must make it clear the relief will be temporary. Tesla’s wanting to test the market before committing capital does not sound unreasonable because, at anywhere between 60% and 100% (depending on the price), the duties are very high. Investors like Tesla can make a big difference to the ecosystem, and if the government is serious about the environment and promoting clean energy, it should be willing to give up some revenue. After all, if the Tesla vehicles are a hit, the company will invest in a factory and tax collections will go up in the future; if it does not manage to sell too many cars, the government won’t lose much revenue any way.

If a duty cut encourages a global player like Hyundai, which already runs a successful business franchise in India, to invest further to set up capacity to make EVs, there is certainly merit in the proposal. In fact, Hyundai has already outlined its India EV plans and has said it is working on made-in-India affordable mass-market EVs. Kim’s case is that companies need time to localise production of components and, until then, imports could help generate some demand for EVs.

Some duty relief for a temporary period—maybe 12 to 18 months, until the charging infrastructure is in place and the localisation is complete or almost-complete—would be a nice gesture. Local players have a lot going for them, with both the Centre and state governments giving them sops. Last month, bigger subsidies were announced under the FAME (Faster Adoption and Manufacturing of EVs) scheme. Notably, the incentive for two-wheelers was raised to Rs 15,000 per Kwh, a 50% increase. That has brought down the cost of a vehicle—which ranges between Rs 80,000 and Rs 1.7 lakh—by at least 10%. Meanwhile, the incentives under the PLI scheme for ACC batteries are a fairly generous Rs 18,100 crore and should encourage local manufacturing. Lithium-ion batteries account for 40-50% of the cost of the vehicle, and if battery prices come down, the vehicles will become more affordable. Indeed, there’s little reason for players like Ola Cabs to be complaining. Given the need to grow the EV ecosystem, and, more critically, create jobs, it should attract more global players.

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