World Gets an Offer from India to Attract Key Electric Vehicle Industry Participants Globally

India is set to roll out a new automotive sector scheme in the coming months, with the final details expected within a month and companies able to apply for incentives from April 1. This focused approach for investment in the sector has been under discussion since mid-2020, aiming to make India more competitive on the global stage.

The scheme proposes financial incentives to help overcome challenges and attract manufacturers from countries like China and Vietnam, as part of India's broader $27 billion programs. Companies making electric vehicles (EVs) and their components will receive 4-7% government cashbacks, with an additional 2% as a growth incentive.

India's efforts to promote EVs have been hindered by a lack of investment, weak demand, and varying incentives across states. However, this new scheme is expected to change the landscape, with the government aiming to attract $14 billion of investment over five years for EV manufacturing.

Besides Tesla Inc., several other companies have announced multibillion-dollar investments in the EV sector. Tesla's Elon Musk has plans to enter India's EV market, joining forces with companies like BMW, which is investing over ten billion euros into its new fully electric "Neue Klasse" model series, and Bosch, which has invested more than ten billion dollars in related technologies, including in the U.S. market.

Ford, Volkswagen, Tata Motors, and Mahindra & Mahindra also plan to invest billions of dollars in India's EV sector. To benefit from the scheme, automakers must have a minimum global revenue of $1.4 billion, and auto parts makers must have a minimum of $69 million.

The government expects the scheme to bring an additional investment of $14 billion, create 5.8 million new jobs, and rake in more than $4 billion in total tax revenue over five years. The plans include $8 billion of incentives for carmakers and suppliers over a five-year period.

The scheme is designed to promote firms with the potential to become global leaders in the automotive sector. Existing programs have focused on a large number of companies that lack scale and are constrained in their ability to invest and undertake the risk required for rapid growth. A change in strategy is needed to focus on promoting firms that have the scale, competitive ability, and management capabilities to become automotive champions.

Auto component manufacturers in India are encouraged to pivot their product offerings to cater to the shift towards EVs. Steep interest rates, power tariffs, poor infrastructure, and high logistics costs make it costlier for companies to operate in India compared to countries like Thailand or Vietnam. The new scheme aims to address these issues and create a conducive environment for the growth of the EV sector in India.

World Gets an Offer from India to Attract Key Electric Vehicle Industry Participants Globally