India's EV policy: Can it deliver on manufacturing, jobs and green goals?
Compared to over 11 million battery-powered cars sold in China in 2024, India’s total electric car sales were just 111,300 units.Express Illustrations
Updated on
:
To draw major global companies to invest in the production of battery-powered passenger vehicles in India, the Centre has launched a new electric vehicle (EV) policy that lowers import duties on electric cars.
The Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), unveiled last week, will help attract investments from global EV manufacturers, promote India as a manufacturing destination for e-vehicles, create jobs, and help India achieve carbon emission norms.
To encourage global brands to invest under the Scheme, they will be allowed to import Completely Built-in Units (CBUs) of e-4W with a minimum Cost, Insurance and Freight (CIF) value of $35,000 at reduced customs duty of 15% for five years from the application approval date. To avail this important benefit of the scheme, manufacturers would be required to make minimum investment of Rs 4,150 crore.
The maximum number of electric four-wheelers allowed to be imported at the reduced duty rate is capped at 8,000 units per year. The carryover of unutilised annual import limits would be permitted. The maximum benefits from this duty reduction are topped at Rs6,484 crore or the actual investment amount, whichever is lower.
Manufacturers are also required to meet certain criteria including the need to achieve an annual turnover of at least Rs2,500 crore by the second year, Rs5,000 crore by the fourth year, and Rs7,500 crore by the fifth year. Additionally, they must reach local value-addition targets of 25% by the third year and 50% by the fifth year.
They are also required to be of a certain size. The Global Group’s Revenue (from automotive manufacturing) has to be at least Rs10,000 crore and if the applicant is an investment company, the revenue should not be less than Rs3,000 crore.
The application widow under the scheme is likely to open soon, and will remain open for 120 days. However, the government can reopen the window as and when required till March 15, 2026. Union heavy industries minister H D Kumaraswamy has said that global players including Mercedes, Volkswagen-Skoda, Hyundai, and Kia have shown interest in applying under the EV policy.
American electric car company Tesla, which has been exploring opportunities in the Indian market for years but has hesitated due to concerns over high import duties, is not interested in participating in the Scheme. This is a major blow for India given India first announced the new policy when Tesla was showing interest and was lobbying extensively for a cut in import duty.
Following the changes in the EV policy in March 2024, reports emerged that Tesla was planning to send a team to scout locations for a proposed $2-3 billion EV manufacturing plant.
However, progress stalled in April 2024 when Musk postponed his planned visit to India and a follow-up meeting with Prime Minister Narendra Modi. Shortly after, Tesla announced it would focus on scaling production at its existing facilities rather than investing in new manufacturing units.
Now it is confirmed that Tesla is not interested in setting up a facility in India anytime soon and would rather start selling its cars here as CBUs.
According to Kumaraswamy, Tesla is not interested in manufacturing cars in India but is keen on establishing showrooms in the country. A Tesla factory in India would have given a major boost to the country’s electric vehicle ecosystem by producing cars, batteries and charging solutions locally.
Experts, however, believe that even if Tesla agrees to set up a plant here, it would remain a small player here. This is primarily because India is a price-sensitive market, with the bulk of the passenger vehicles sold here carrying a price tag of less than Rs20 lakh. In contrast, Tesla’s cheapest Model 3 retails for $42,490 in the US (around Rs37 lakh), placing it firmly in the luxury segment in India, even before the hefty duties come into play.
Tesla is now expected to import cars from Germany to sell in India. These models are likely to attract a duty of about 110%. The company may benefit if India and the US finalise a trade deal in which President Donald Trump arm-twists India to reduce duties on American cars.
Concessions outlined in India’s electric vehicle (EV) policy aimed at attracting global players in all likelihood will not extend to Chinese companies. This was almost confirmed by union minister of commerce and industry Piyush Goyal who said in April that Chinese electric vehicle giant BYD will not be allowed to make new investments in India.
“We will have to be cautious on whom we allow to invest in the country. We have to be cautious about our strategic and security interests,” Goyal told Bloomberg at the India Global Forum in Mumbai.
“We need to be convinced that they will work by the rules of the game,” he said, adding that the country needs to be alert on dumping by other countries in the wake of US tariffs.
BYD, the largest electric car company in the world, is keen to invest in India. Other Chinese firms have also shown interest in having a presence here. In 2023, India rejected investments from China’s auto behemoths — BYD and Great Wall Motors (GWM). BYD’s $1 billion investment plan was rejected in July 2023 while GWM had to shelve plans to set up an India plant as it could not secure clearances.
A senior government official confirmed that Chinese companies will be excluded from these benefits due to national security concerns. Chinese car companies have come to terms with India’s reluctance.
BYD said in October last year that they are not applying for benefits under the new EV policy. "Representatives of our company, who have a good idea about the policy, went in, went through that. The final conclusion... is that we have decided that, no, we are not ready to implement this policy in the short term. So, we are not applying," said Rajeev Chauhan, head of electric passenger vehicles business, BYD India.
India’s electric car market is small and its penetration in total car sales is quite low at just 3%. Compared to over 11 million battery-powered cars sold in China in 2024, India’s total electric car sales were just 111,300 units. In the US, electric car sales increased to 1.6 million in 2024, with their share in total car sales growing to more than 10%.
The slow intake of electric car sales in India, the world’s largest car market, is primarily attributed to fewer models, expensive selling price and inadequate charging infrastructure to support the EVs.
However, things are changing at a rapid pace. Retail sales of electric cars in April 2025 stood at 13,120 units, up by a massive 69% year-on-year. On the back of new launches, e-PV cumulative January-May 2025 retail sales grew to 59,444 units, recording a 44% growth year-on-year. Given the current sentiment and new launches in the coming months, including one by India’s largest carmaker – Maruti Suzuki -- electric car sales are expected to breach the 150,000-units mark for the first time in CY2025.
Research and rating agency firm ICRA said that the penetration of electric vehicles in India’s overall automobile sales is expected to grow exponentially by FY30 from the current levels. ICRA sees EV penetration in passenger vehicle sales grow five-fold by FY30 to 15%, up from 3% seen at the end of FY25. The sharp growth will be led by expansion of product portfolio by automakers, improved charging infrastructure, lower battery prices, and lower running cost of electric PVs, said ICRA.
The key attraction of the scheme is a lower (15%) tariff on imports by manufacturers who commit to start manufacturing facilities in India. However, India’s trade pact with the US, the UK and later on with the European Union might play spoilsport. It is well-known that the US, UK and Europe are bargaining hard to make India lower tariffs on cars.
In fact, under the UK trade deal, India has agreed to reduce tariffs on cars to 10% under a quota system. However, commerce ministry officials say small EVs have been kept out of the ambit of the trade deal. Also, the US and EU are likely to ask for similar concessions for the automotive sector under the ongoing trade talks.
A whopping 17 million electric cars were sold globally in 2024, according to a recent report by the International Energy Agency (IEA). China maintained its lead among major markets, with electric car sales exceeding 11 million. In fact, almost half of China’s car sales were electric in 2024, representing almost two-thirds of electric cars sold globally.
For context, China accounted for half of global electric car sales in 2021; this share grew to almost two-thirds in 2024. On a monthly basis, sales of electric cars have overtaken conventional car sales in the country since July 2024, bringing the share of electric car sales close to 50% for the full year. In China, 2024 marks the fourth consecutive year in which the electric car sales share grew by approximately 10 percentage points year-on-year.
In the US, another major market for electric cars, EV sales are growing but not as fast as in China. In 2024, around 1.6 million electric cars were sold in the US, with the sales share growing to more than 10%. In the first quarter of 2025, around 3 lakh EVs were sold, according to available data.
A total of 24 new electric car models were launched in the US in 2024. While the Tesla Model Y and Model 3 have been the two best-selling models in the United States since 2020, the 110 new models that have entered the market since then have driven the market share of Tesla down from 60% in 2020 to 38% in 2024.
IEA pegs electric car sales in 2025 to cross 20 million worldwide. This would mean, 25% of all cars sold globally will be electric. China, which is driving EV usage in emerging markets through export of electric cars, EVs are projected to represent 60% of overall car sales in 2025.
Incentives and subsidies US gives to promote EVs
