Foreign Firms Hesitant as EV Policy Faces Local Sourcing Hurdles

The Indian government’s recent electric vehicle (EV) policy is struggling to attract foreign manufacturers due to stringent local sourcing requirements and investment norms. Announced on June 2, 2024, the policy permits companies to import a limited number of electric cars at a concessional import duty of 15 percent. However, the initiative has faced significant challenges, including a domestic value addition (DVA) mandate of 25 percent, which has deterred potential applicants.

Despite the launch of the portal for the Scheme to Promote Manufacturing of Electric Passenger Cars (SPMEPCI) on June 24, the government revealed that no applications had been submitted by July 16. A government official, speaking to Moneycontrol, highlighted that foreign manufacturers such as Volkswagen, Kia, and Mercedes are showing little interest in the program. The official remarked, “We are worried that the scheme is there but there are no applicants,” indicating a growing concern regarding the effectiveness of the initiative.

The SPMEPCI is designed to incentivize local production by requiring manufacturers to source at least 25 percent of parts and components locally within three years of commercial production and 50 percent by the end of five years. Additionally, companies must commit to a minimum investment of Rs 4,150 crore. Those who fail to meet these DVA norms face penalties, further complicating the attractiveness of the scheme.

The government is actively engaging with EV manufacturers to understand their concerns. The official noted, “We are examining what reasons are there. We have had two to three stakeholder consultations.” Key demands from industry players include considering past investments and reducing the DVA requirement. The official explained that if the DVA remains at 25 percent, companies might opt to pursue import routes instead of establishing local manufacturing operations.

Despite ongoing discussions, the government appears reluctant to modify the scheme significantly. “We are not considering any changes to the scheme; we are waiting, maybe they (EV makers) will change their mind,” the official stated, reflecting a cautious approach to stakeholder feedback.

While the SPMEPCI portal will remain open for applications until October 21, 2024, the lack of initial responses raises questions about the future of foreign investment in India’s EV sector. The government’s strategy to promote local manufacturing in the electric vehicle industry is critical to its broader goal of achieving sustainability and reducing carbon emissions.

As the deadline approaches, it remains to be seen whether foreign manufacturers will reconsider their position or if the government will make adjustments to attract participation. The success of the policy hinges on balancing local sourcing requirements with the interests of global automotive players, a challenge that will require careful navigation in the coming months.