There has been no further indication from Tesla on whether it, at all, wants to make electric cars in the country, despite the import duty sops available under SPMEPC.Global electric car OEMs, including Tesla, have stayed away from committing any investments in India despite concessional import duty rates promised in a scheme to promote local manufacturing.
Tired of waiting for applications under this scheme, the government is compelled to take a second shot, with some tweaks. The Scheme for Promotion of Manufacturing of Electric Passenger Cars (SPMEPC), which had been virtually tailor-made to suit Tesla’s demands, lapsed late last month without a single application coming in.
In fact, as other OEMs hemmed and hawed over whether to set up manufacturing operations for electric cars in India, Tesla quietly entered the market through the CBU (Completely Built Unit) route, setting up dealerships in big Indian cities. There has been no further indication from Tesla on whether it, at all, wants to make electric cars in the country, despite the import duty sops available under SPMEPC.
The no-show by global OEMs till date comes despite senior government officials indicating earlier that Hyundai Motor India, Kia India, the Volkswagen Group and Toyota, were interested.
Now, with egg on its face, the government is looking at ways to revive the scheme. A senior government official told ETAuto that the portal which had been opened to accept applications under this policy has been closed but could be reopened after fresh industry consultations.
He said a Tesla representative had attended one of the stakeholder consultations of SPMEPC earlier but there was no representation from the company in subsequent meetings.
“We are thinking of re-opening the portal after the suggestions come in from OEMs on any changes they want. The industry has two weeks to come back to us,” he said but warned that fundamental shifts in the policy would not be possible. “The policy was drafted after several high-level inputs from within the government, many senior officials were involved…it will not be possible to amend the SPMEPC majorly, fundamental shifts cannot be made,” he said without elaborating.
Industry wants ICE cars inclusion
In the fresh consultations over this scheme, with one round happening last week, at least one OEM has suggested that import duty sops be made available for setting up manufacturing operations for ICE cars.
The official quoted earlier said this defeated the very purpose of the scheme, which is to promote manufacturing of green vehicles. A major industry concern, he also said, was about the possible impact on import duties under the impending India-EU Free Trade Agreement (FTA). In case duties are significantly lower under the FTA, the SPMEPC will become rather unattractive since it requires significant investments and lays down conditions on domestic value add (DVA) besides penalties for not meeting DVA criteria.
There were other red flags too in the scheme. At least one local OEM had indicated earlier that the scheme laid down near impossible conditions for OEMs with just concessional imports being allowed in return.
One, the investment made by an OEM in land– a sizable amount usually – has been excluded from the total investment mandated under this policy. Two, penalties have been defined in case the strict DVA targets are not met.
“Who promotes a policy for encouraging incoming investment while also setting out penalties for breaching local sourcing requirements? DVA norms are quite difficult to implement,” a person at one of the OEMs had said earlier.
The high entry barrier – ₹10,000 crore global revenue from automotive business and global fixed assets worth ₹3,000 crore – anyway makes smaller EV OEMs ineligible. Also, the import duty reduction was applicable only on high-value CBUs, incentivising global OEMs to test market their high-end EV models in the Indian market.
Govt sticks to its guns
Another senior government official had said earlier, when the scheme portal was still open, that the SCMEPCI offered significant import duty benefits. “The duty benefits available under the policy are such that an entirely new manufacturing plant can be funded with the saved money,” he had said.
SPMEPCI requires a participating OEM to commit ₹4,150 crore ($500 million) minimum investment in setting up a manufacturing facility for electric passenger cars in India. It must also furnish a bank guarantee of at least ₹4,150 crore ($500 million) along with the application.
The OEM must also achieve 25 per cent DVA (domestic value add) within three years and 50 per cent within five years.
Brownfield investments had later been allowed under the policy, after much lobbying by India’s homegrown OEMs, since they had cried discrimination at the prospect of global companies getting benefits for making in India, leaving the Indian OEMs out.
But the brownfield investments were eligible only as long as the OEM can showcase a new line for electric passenger cars at an existing facility, under specific conditions. One of these conditions was a clear physical demarcation between the new manufacturing facility and any existing manufacturing facility; investment and other criteria remained the same as for global OEMs.
In lieu of a commitment to make electric passenger cars in India and reach local sourcing level of 50 per cent in five years, the OEM was to be allowed to import a specified number of high-value cars (priced $35,000 and above) from its global factories at a concessional duty rate of 15 per cent.
Tesla walked away
The SPMEPC was, for all intents and purposes, notified with undue haste in March 2024, just days ahead of the general elections, to woo American electric vehicle giant Tesla.
Much of the scheme was framed to comply with Tesla’s asks. But as Tesla dithered (due to its own domestic and political compulsions), actual guidelines under the scheme did not come out for another 15 months.
The scheme guidelines came only after it became amply clear that Tesla will only be importing cars instead of parking large sums in setting up a manufacturing base in India. Now, since no application has been made under the scheme, it remains unclear whether any global OEM will indeed set up a manufacturing unit for electric cars in India.
