EV landscape in India
The challenges the government and industry face today are crucial as domestic and foreign players seek a level playing field. Meanwhile, India needs to attract investment, boost innovation, and achieve its 30% EV penetration target by 2030 with industry-friendly policies and actions.
Chandan Basu Mallik writes that creating a level playing field for EV makers—both domestic and foreign brands—in India will not only remove barriers but also foster healthy competition and innovation.
Key takeaways
- Chinese EV manufacturers like BYD, Nio, XPeng, and Great Wall Motors are expanding rapidly in global markets, including Europe and Southeast Asia.
- The US is pushing India to eliminate tariffs on car imports as part of a proposed trade deal.
- The government is serious about reducing import duties on EVs from 110% to 15% for companies that invest ₹4,150 crore (approximately $500 million) in local manufacturing and meet DVA targets.
- The proposed new EV policy requires manufacturers to invest in local manufacturing and achieve DVA targets to benefit from reduced import duties.
It is no secret that high import taxes on automobiles have been an impediment for foreign players operating in India. However, that could change soon if the Indian government moves forward with its proposed cuts in customs duties, especially for electric vehicles (EVs).
To understand where India stands from the global perspective, consider this: Currently, the penetration of battery-electric vehicles in India’s passenger vehicle segment is around 2.4%. However, this figure could significantly increase with the right policies and incentives, positioning India as a major player in the global EV market.
India aims to achieve 30% electric vehicle penetration by 2030 and has implemented several incentive schemes in this direction. These schemes are expected to help reduce greenhouse gas emissions, lower oil imports, and even place India as a global hub for EV manufacturing, a testament to the country’s potential and commitment to sustainability.
Among them (the various schemes) is FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles), designed to encourage the adoption of electric and hybrid vehicles by providing financial incentives and creating charging infrastructure. FAME came in several phases: FAME I (2015-2019): Focused on demand creation, technology development, and pilot projects. FAME II (2019-2024) was allocated ₹10,000 crore (approximately $1.3 billion) to support the adoption of 7,000 electric buses, 500,000 electric three-wheelers, 55,000 electric passenger cars, and 1 million electric two-wheelers. The scheme also included subsidies to buyers of electric passenger cars, reducing the upfront cost. The initiative supports the development of charging infrastructure.
The second major scheme was the Production Linked Incentive (PLI) Scheme for the Auto Component and Automobile sectors. As the name suggests, its objective was to boost the domestic manufacturing of advanced automotive technologies, including electric vehicles and their components. The budget for PLI is ₹25,938 crore (approximately $3.5 billion) over five years.
Indian government could change the EV Manufacturing Policy’s present Domestic Value Addition (DVA) guidelines.
Despite the incentive scheme rollout, the lukewarm response to India’s EV manufacturing policy, which allows automakers to import certain electric cars at a reduced import duty, has again drawn the government’s attention. DVA is the share of manufacturing value added to the total bill of materials for an EV passenger car.
Pressure on India to reform the import tax structure.
It is no secret that the United States wants India to eliminate tariffs on car imports under a proposed trade deal between the two nations. As expected, New Delhi is reluctant to immediately bring down such duties to zero even as it considers further cuts, sources told Reuters.
Meanwhile, European Union (EU) leaders are pushing India to lower its tariffs on cars and alcoholic beverages and expand market access. European Commission President Ursula von der Leyen’s recent visit to New Delhi has once again kick-started the stalled discussions to finalize an India- EU free trade agreement (FTA) by the end of 2025. While India is unlikely to immediately agree to US demands to reduce auto import tariffs to zero, the Indian government has been preparing the domestic industry for a potential reduction in tariffs and increased competition after consultations with them.
Can Tesla’s arrival change the game in India, and why are Indian EV makers nervous?
India’s automotive market, which sees around 4 million vehicles sold annually, is one of the most protected in the world and can be challenging to crack if the cards are not played right. Homegrown automakers like Tata Motors and Mahindra & Mahindra have consistently opposed lowering import tariffs, arguing that such a move would undermine local manufacturing by making imported vehicles more competitive. This, they claim, would deter investment in domestic production.
The resistance is extreme for electric vehicles (EVs) as it is a developing market. Tata Motors and Mahindra & Mahindra have already invested considerable amounts in the EV sector. They think reducing import tariffs on EVs would harm their investments and limit their growth potential.
It is no secret that US-based EV maker Tesla has been eyeing the Indian market since 2016. In 2021, Tesla officially registered its Indian subsidiary, Tesla India Motors and Energy Private Limited, in Bengaluru, Karnataka.
The company has often pointed to the high import duties (up to 100% on fully imported cars) and the lack of widespread EV infrastructure as key barriers to its entry into India. Under the current import duty structure, a Tesla model priced at Rs 35 lakh could cost the Indian consumer Rs 70 lakh or more. The government faces the challenge of finding a compromise that satisfies both sides in this complex business scenario. Tesla’s potential entry could significantly alter the landscape of the Indian EV market.
So, what should the business model be?
Any new set-up by a foreign brand is good news for India and top automotive investor-friendly states like Maharashtra, Tamil Nadu, and Gujarat. It creates employment and encourages skilled workforces, direct and indirect jobs, logistics services, tax collections, infrastructure development, downstream suppliers, and other revenue-generating resources.
Furthermore, the entry of foreign brands could transform the state into a hub for automotive manufacturing, enhancing its competitiveness in the global market through efficient production and hi-tech applications. This could be a significant step towards India’s goal of becoming an international hub for EV manufacturing.
However, manufacturing and selling Tesla cars in India is a second option. Elon Musk’s reluctance to commit outright is understandable at this juncture.
A sound business model will require massive investments, and the rate of return is low for this type of business. Besides, India’s market alone may not justify setting up a full-fledged manufacturing unit for Tesla (as opposed to assembling CKD units under a contract arrangement). The possibility of involvement of a financially strong Indian partner cannot be ruled out at this stage.
Tesla’s sales of its China-made electric vehicles dropped 49.2% in February from a year earlier to 30,688 cars, the lowest since August 2022. In a relentless global smart EV price war, Tesla faces immense pressure from Chinese rivals.
Tesla has invested billions of euros in the Gigafactory Berlin-Brandenburg factory. The factory primarily produces Tesla’s Model Y, an all-electric compact SUV, and battery cells for Tesla vehicles. The facility is one of the largest industrial projects in Europe, with plans to produce up to 500,000 cars annually at full capacity.
Domestic brands like Mahindra & Mahindra and Tata Motors have certain distinctive advantages in India that any new EV entrant—Tesla, BYD, or Nio—cannot ignore or expect to overcome overnight. Both Indian brands have successfully built a deep understanding of the Indian market and how it addresses unique consumer preferences. Both Indian brands have already launched affordable EVs, gaining a first-mover advantage.
Tesla’s technology and price points can be challenged
BYD, one of China’s leading EV manufacturers and a key competitor to Tesla is making impressive strides in integrating affordable autonomous driving technology into its vehicles. Branded as ‘God’s Eye’, BYD plans to roll out a self-driving system in all its models, ranging from cheaper to more exclusive vehicles as standard.
BYD plans to become a disruptor in the market with cost-effective advanced features like ADAS, which is making rivals nervous. These features are currently sold or packaged as subscriptions to consumers by car brands like General Motors, Tesla, Toyota, BMW, Mercedes-Benz, Ford, Volvo, Nio, Hyundai, and XPeng, among others.
It will be interesting to see how the automotive industry reacts to BYD’s short—and medium-term initiatives. Shifting toward software-defined vehicles has gained traction in the market, wherein ADAS subscriptions are becoming more common and affordable, benefiting both consumers and manufacturers.
According to market intelligence reports, Hangzhou, Zhejiang, China-based DeepSeek has emerged as a key disruptor in the AI sector after it launched a model using far less computing power than US equivalents. BYD has recently announced a collaboration with AI firm DeepSeek. BYD competitors like Geely, Great Wall Motor and Stellantis partner Leapmotor also seek to integrate DeepSeek systems into their models. BYD wants to make autonomous driving less of a luxury and more of a commonplace safety feature.
China leads the way in EVs, and they are cost-effective, too.
At least 15 major Chinese EV brands are actively exporting their vehicles, and many more plan to enter international markets, including India, if market conditions are favorable. China commands over 76% of global EV sales and is expected to overtake ICE cars soon.
Brands like BYD, Nio, Leapmotor, WM Motor, BAIC (Beijing Automotive Industry Holding Co.), Dongfeng Motor, Chery, Geely (Polestar and Zeekr Brands), Great Wall Motors (ORA), SAIC Motor (MG), and XPeng are among many other EV makers that have strong presence in Europe and are expanding rapidly in Southeast Asia and Latin American markets with stylish, affordable, feature-loaded models for tech-savvy consumers. Some are even focusing on premium EV markets with upscale products.
Creating a level playing field for domestic and foreign brands
For example, BYD’s decision not to build a manufacturing plant in India could have significant implications for the company and the Indian EV market. The Indian government’s rejection of BYD’s $1 billion investment proposal may have stemmed from regulatory concerns or issues related to trade, foreign investment policies, or the domestic market’s competitive landscape.
With the current tariff structure, India’s approach to creating a level playing field for domestic and foreign brands is crucial for fostering a competitive, innovative, and sustainable economy.
To make it happen, a comprehensive policy rejig is required that aligns comfortably with global best practices for promoting fair competition, attracting foreign investment, and supporting local industries.
A few weeks ago, in February 2025, the government announced a fresh EV policy to lower import duties on electric cars from 110% to 15%. To benefit from this reduced tariff, manufacturers must invest at least ₹4,150 crore (approximately $500 million) in establishing local manufacturing facilities within three years. Additionally, they must achieve a minimum domestic value addition (DVA) of 25% within this period, increasing to 50% by the fifth year.
This means that new incoming brands like Tesla or BYD will address the top end of the market ($35k plus) while the mass-market EV segment remains firmly in the hands of the domestic brands—Mahindra and Tata Motors.
Other suggested measures include removing non-tariff barriers, such as simplifying customs procedures, reducing bureaucratic red tape, and ensuring transparency in regulations, making it easier for foreign brands to operate in the country.
Enforcing Antitrust Laws is also essential, and strengthening the Competition Commission of India (CCI) to prevent monopolistic practices will ensure a fair market for all players.
Foreign brands can benefit from the ‘Make in India’ initiative
Foreign EV brands like Tesla can set up manufacturing plants in India to produce vehicles locally. This aligns with the “Make in India” goal of boosting domestic production and creating jobs. The Indian government offers incentives such as tax breaks, subsidies, and reduced import duties on components for manufacturing companies in India.
Alternatively, Tesla can form joint ventures with Indian manufacturers or suppliers. This allows them to leverage local expertise, reduce costs, and comply with domestic sourcing requirements.
Foreign EV brands can benefit from financial incentives to achieve specific production targets under the PLI scheme that encourages investment in advanced automotive technologies, including EVs and hydrogen fuel cell vehicles.
#BYD#Nio#Leapmotor#WM Motor #BAIC #Dongfeng Motor #Chery #Polesta #Zeekr #Great Wall Motors #MG #XPeng #Tesla #Tata Motors #Mahindra&Mahindra #EV # Electric vehicle
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About the author:
British-Indian Chandan Basu Mallik has been an automotive petrol head and journalist/editor for over thirty years. He has worked in the UK and the Middle East and is currently in India. You can learn more about his work on his LinkedIn profile: https://www.linkedin.com/in/chandan-mallik-34aa47320/. You can write to Chandan at theprimeavenuekol@gmail.com