By Nantoo Banerjee
Union Road Transport & Highways Minister Nitin Jairam Gadkari may be right to say that electric vehicles manufacturers do not need any more government subsidies, as consumers are now opting for EVs and CNG vehicles independently. The minister reasoned that the drop in production costs and the lower GST on EVs make further subsidies unnecessary, with EV costs expected to match those of diesel and petrol vehicles within two years or so. The initial costs of manufacturing electric vehicles were high. Now, with increasing demand for EVs in the market, production costs are coming down, making further subsidies unnecessary. India has been late to enter the EV market. Initially, EV manufacturing countries did offer various incentives to welcome seemingly eco-friendly electric vehicles to curtail the use of petrol and diesel automobiles. A good number of them have either withdrawn the incentives or in the process of recasting them. Today, countries are more concerned about the systematic dumping of China’s subsidised EVs.
Since July 5, the EU imposed tariffs on Chinese EVs with rates ranging from 17.4 percent to 37.6 percent. The tariffs are based on the EU’s investigation into Chinese state support for its EV industry. The investigation found that China was dumping subsidized vehicles on the EU market. Canada has been equally ruthless in imposing anti-dumping duty. The EU tariffs on Chinese EVs vary from manufacturer to manufacturer. For instance, the tariff for Chinese BYD vehicles is 17.4 percent. For Geely, it is 19.9 percent and SIAC (37.6 percent). Other EV manufacturers which cooperated with the EU investigation were levied with 20.8 percent tax and those that did not are required to pay 37.6 percent tax. In 2024, China plans to export six million vehicles, including buses and lorries, which is a 22 percent rise from the last year’s level.
Under India’s EV policy, the country allows imports of electric vehicles from China, along with other countries. The policy offers import duty concessions. Those companies setting up manufacturing units in India with a minimum investment of $500 million are given special import duty concessions. Companies must start domestic manufacturing within three years to avail the lower tariffs. The policy aims at expanding the Indian EV market by manufacturing four-wheeler e-cars. The ultimate goal is to help make India a global manufacturing hub for future mobility solutions. Companies must establish facilities and start commercial production within three years and must achieve a 25 percent domestic value addition (DVA) by the third year and 50 percent DVA by the fifth year. They are allowed limited imports of cars at a lower customs duty. It plans to subsidize two and three-wheelers with incentives of up to Rs 10,000 per electric two-wheeler, and up to Rs 50,000 per electric three-wheeler.
China is the world’s largest manufacturer and exporter of EVs. Last year, it accounted for 58 percent of the global production and it exported over 1.5 million EVs, a 64 percent increase from the previous year’s level. Europe is the largest importer of EVs from China. India is also importing EVs from China while it has rolled out an impressive manufacturing agenda offering attractive incentives. MG Motor India, the first Chinese EV company in the country, witnessed 186 percent year-on-year growth in 2023. Interestingly, China’s Ministry of Commerce had recently held a meeting with more than a dozen automakers, instructing them not to make any auto-related investments in India. China’s EV giants were told not to share technological secrets with India. The automakers were told to focus on protecting advanced EV technology by keeping key production within China, despite rising overseas demand. According to a Bloomberg report, the move is part of Beijing’s efforts to safeguard its EV know-how and mitigate regulatory risks as Chinese automakers expand globally. However, such a policy may only hurt China’s EV industry in due course.
China is not the inventor of EV technology. The concept is over a century old. Technologically, the US and Germany are reasonably ahead of China. Their interest in electric and alternative fuel vehicles increased in recent years as part of the global environment protection programme. On the contrary, China’s massive expansion in the EV sector seems to have little to do with its concern for ecology. China is the world’s largest producer of eco-damaging coal and coal-based power. As of now, coal accounts for nearly 60 percent of China’s electricity supply. Last year, China’s power sector emissions increased by 5.9 percent compared to 2022. China was responsible for 95 percent of new coal power construction in 2023. The massive production of EVs in export-led China is seen more as a big business opportunity than its commitment to environment protection.
Globally, the demand for EVs has been growing exponentially due to falling costs, improving technology and government subsidies. According to the International Energy Agency, 10 percent of passenger vehicles sold across the world in 2022 were all-electric. The number was 10 times higher than that only five years earlier. A number of countries are switching over to EVs at impressive rates. Among the countries reportedly having the most impressive share of EV sales are: Norway (all-electric vehicles made up 80 percent of passenger vehicle sales in 2022), Iceland (41 percent), Sweden (32 percent), the Netherlands (24 percent) and China (22 percent). By the number of EVs sold, China, boasting the world’s largest car market, would occupy the top position. The two other large passenger car markets witnessing good EV sales are the European Union (12 percent) and the United States (six percent). The world’s top five car manufacturing countries are: China, the US, Japan, Germany and India. It may be interesting to note that the US, Japan and India are yet to step up EV production in a big way.
As of now, India’s EV policy looks robust. The GST on EVs fixed by the world’s fifth largest automaker is only five percent as against 28 percent GST imposed on vehicles powered by internal combustion engines, including hybrids. Union minister Gadkari rightly thinks that the overall shift away from fossil fuels to alternative fuels would be a gradual process, given the size of India’s economy and energy needs. Further reduction in the cost of lithium-ion batteries will bring down the cost of electric vehicles. Within the next two to three years, the cost of EVs in India will be comparable with that of diesel and petrol vehicles although the government is working on a fresh initiative on the ‘Faster Adoption and Manufacturing of Electric Vehicle (FAME)’ scheme. (IPA
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