India’s New EV Policy: 7 Powerful Reasons That Could Transform Domestic Manufacturing

Changing the EV policy is essential to attract global automakers and reduce dependency on imports. India strongly highlights domestic EV manufacturing to reduce import dependance, create jobs, and build a strong supply chain for supportable mobility. This shift also boosts domestic manufacturing, positioning India as a competitive EV hub focused on sustainable growth and innovation.

The new EV policy, under the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), introduces significant incentives aimed at encouraging foreign companies to establish production facilities domestically. This move is expected to accelerate the country’s transition to sustainable mobility while supporting economic growth and job creation.

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Key Incentives and Requirements in the New EV Policy

1. Investment Commitment: To qualify for incentives, foreign EV manufacturers must commit to a minimum investment of approximately ₹4,150 crore (about $500 million). This investment must go into creating new manufacturing facilities rather than relying on previous contributions to the Indian market, ensuring that each participating company establishes a genuine manufacturing footprint in India.
2. Reduced Import Duties: One of the policy’s main attractions is the reduction of import duties for companies meeting the investment criteria. Currently, India imposes import tariffs ranging from 70% to 100% on EVs, but under the new policy, companies that invest in local manufacturing can import up to 8,000 EVs annually at a reduced duty of 15% on models priced at $35,000 and above. This allows automakers like Tesla to enter the Indian market affordably while they set up production facilities.
3. Localization and Domestic Value Addition (DVA): To further enhance local industry and technology development, the policy mandates that manufacturers must ensure at least 25% of vehicle components are sourced locally by the third year of operations, reaching 50% within five years. This focus on localization is aligned with India’s broader “Make in India” initiative and aims to create a robust domestic supply chain for EV components.
4. Bank Guarantees for Compliance: The government requires automakers to back their investment commitments with bank guarantees. If a company fails to meet the stipulated requirements, including the local value addition targets, these guarantees will be forfeited, ensuring accountability for all stakeholders.

EV Policy Impact and Market Outlook

The updated policy is expected to position India as an appealing destination for foreign EV manufacturers, aligning with the government’s goals of reducing dependence on fossil fuels and achieving net-zero emissions by 2070. Tesla, which has shown interest in entering India for several years, may now find it financially viable to set up operations with these tax incentives. Tesla’s entry could encourage other companies like VinFast, Rivian, and BYD to consider India as a viable market for growth.

This shift in policy also aims to boost the competitiveness of India’s local EV manufacturers. Domestic players such as Tata Motors, Mahindra, and even Maruti Suzuki, which are increasingly expanding their EV offerings, will now have to meet international standards to compete effectively. As EV adoption rises, more Indian consumers will gain access to a variety of models, from affordable options to luxury EVs, contributing to the overall growth of India’s EV market.

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Challenges and Considerations

While these policy changes are promising, there are challenges to consider. India’s EV market is still nascent, with EVs representing only a small fraction of the overall vehicle market. Infrastructure, particularly for EV charging, remains underdeveloped, and the high cost of EVs continues to deter many potential buyers. However, the government’s increased investment in EV infrastructure, along with the anticipated entry of global players, could help address these barriers.

The revised EV policy is a bold step that could transform India into a significant player in the global EV market by providing substantial incentives for global manufacturers to establish a presence in India. If successful, it will not only catalyze India’s green mobility transition but will also make the country an important hub for EV production in Asia, attracting large-scale investments and creating new employment opportunities in the automotive sector.

By revisiting its EV policies, India signals its commitment to sustainable transportation, economic development, and alignment with global climate goals, all of which could pave the way for an expanded, competitive EV market in the near future.