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Policy entails the following:

* Investment requirement: Minimum capex of INR41.5b (~USD500m) required, with no upper limit on investment.

* Timelines: There would be a three-year timeline for setting up manufacturing facilities in India and commencing commercial production of EVs.

* Localization: 25% localization level is expected to be reached by 3rd year and 50% by 5th year.

* Customs Duty: The customs duty of 15% (as applicable to CKD units) would be imposed on vehicles with a minimum CIF value of USD35k and above, for a total period of five years, subject to the manufacturer establishing manufacturing facilities in India within a three-year period.

* The duty foregone on the total number of EV allowed for import would be limited to the investment made or INR64.84b (equal to incentive under PLI scheme), whichever is lower (explained with examples in exhibit-1).

* A maximum of 40,000 EVs at the rate of not more than 8,000 per year would be permissible, if the investment is of USD800m or more. The carryover of unutilized annual import limits would be permitted.

* The Investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone.

* The Bank guarantee will be invoked in the event of non-achievement of DVA and minimum investment criteria defined under the scheme guidelines.

Impact on Indian OEMs

Given that this policy is focused on 4W EVs, it appears that there will be no direct impact on domestic 2W OEMs. For domestic 4W OEMs, the potential impact would depend upon how many global OEMs show interest to invest in India under the above policy incentive. What’s interesting to note is that this policy comes at a crucial time when two global EV OEMs are already considering India as a manufacturing hub for EVs viz:

* Tesla: Tesla has been in the news off late for its entry plans in India. We also understand that Tesla is going to launch its most affordable EV till date Model 2, which is expected to be launched by July2025. The pricing of this is likely to be less than GBP 30k. Thus, if Tesla decides to manufacture the Model2 in India and price it around INR 2m, it could certainly be a cause of big worry for most domestic 4W OEMs, more so, for Tata Motors, who leads the EV race in India currently.

* Vinfast: Vietnamese EV major Vinfast has already announced its plans to invest USD 2b in India to set up an EV manufacturing plant with an initial capacity of 150k units pa. It has earmarked an investment of USD 500m for the same. We believe the VF3, a 3.1 mtr mini EV, could be a fit for the price-sensitive Indian market.

Our view: Substantial incentives on offer to make local manufacturing competitive

* The scheme will certainly encourage global OEMs to set up manufacturing facilities in India. Also, with its emphasis on toward localization, it will foster the development of an EV ecosystem in India. This, in turn, will benefit domestic auto component players who invest in advanced technologies that are currently not manufactured in India.

* It would be interesting to observe how many global OEMs express interest in investing in India following the implementation of this policy, and which of their EV products they aim to produce in India. We believe any launch priced at or below the INR 2m mark in India will likely to garner significant consumer interest, and hence, can be a cause of worry for Indian OEMs. We will continue to monitor these events closely going ahead.

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