In a recent announcement, the government urged carmakers to stop importing parts from China for electric vehicles (EVs) and instead set up manufacturing operations in India.
It will take at least three to five years for India to be able to manufacture EV components on its own, despite the government’s call.
Insufficiency of scale
Currently, most companies import parts from China and other countries because the electric vehicle industry is fairly small and does not produce large quantities of electric vehicles. India’s EV market accounts for only one percent of the total automotive industry’s sales.
“The ecosystem in India for (the manufacture of) electric vehicles is not so robust, and therefore you have quite a few components being imported, like parts of the drivetrain, battery, battery components, etc,” Automotive Component Manufacturers Association (ACMA) of India Director-General Vinnie Mehta told Moneycontrol.
Due to the lack of economies of scale, even conventional parts that can be produced locally are imported by Mehta since there are no mass producers of electric vehicles in India at the moment.
The manufacturer explained that currently, around 70 percent of the components used to make electric cars come from China and Taiwan. In spite of this, Mehta said that indigenous suppliers will be able to provide parts as EV volumes grow.
Mehta’s remarks were echoed last week by RC Bhargava, the chairman of Maruti Suzuki India. At the 61st annual convention of the Society of Indian Automobile Manufacturers, Bhargava said that Indian customers looking to buy entry-level vehicles did not possess the financial heft to buy vehicles that met European standards, and that the Indian market is predominantly made up of entry-level consumers.
“Electrification can only happen at large scale in India when the customer finds it is in his interest to buy an electric vehicle rather than an internal combustion engine,” Chairman of Maruti Suzuki India R C Bhargava said last week. “Given the state of infrastructure in various areas, this process will take some time and the internal combustion engine vehicle will continue to be in production for many, many years,” Bhargava said.
In the short term, Maruti will be launching an EV, and the government should consider other alternatives as well, such as CNG and hybrid vehicles, to cut pollution from vehicles.
Tata Motors’ President of passenger vehicles, Shailesh Chandra, said today that affordable hatchback vehicles (considered entry-level cars) remain challenging at the current price of batteries.
It was for this reason that the company decided to develop its new EV (Tigor EV) in the sedan segment because there was a wider range of competitive pricing.
There is a huge growth potential for India’s EV market, despite its size. Despite a number of concerns raised by the EV industry in India, Ravneet Phokela, the Chief Business Office for Indian electric two-wheeler maker Ather Energy, said that the government has addressed several of them. “The only thing we import from China is cells, because India has no cell production,” said Phokela.
A dependence on China
In 2020-21, the ACMA reported that auto component imports declined 11 percent to Rs 1 lakh crore ($13.8 billion) from Rs 1.12 lakh crore ($15.4 billion) a year earlier. However, China’s share of imports decreased only by 1 percent in 2020-21.
The Indian automobile industry imports about 29 percent of its components from China, including electrical and electronic components, motors, and wheels.
The Chinese supply most of the subcomponents for engines, electronics, alloy wheels, and tyres. Lithium-ion battery cells are also supplied, among other components for EVs.
In 2020-21, Indian industry imported 1.966.7 million monolithic integrated digital circuits from China, according to Department of Commerce import data.
Lithium-ion cells worth $700 million, rotating electronics worth 165.1 million dollars, and switching diodes worth $65.1 million were also imported from China in 2020-21.
EVs, white goods, and electronics are major users of electronic parts imported from China.
Indian EV producers face the biggest hurdle in sourcing batteries from China and from Advanced Chemistry Cell batteries since there is no cell production in the country.
Phokela believes Indian battery manufacturers will set up shop in India over the next five years despite the government’s Rs 18,100 crore production-linked incentive program for manufacturing advanced chemistry cell batteries.
Though Indian automakers are under government pressure to switch to EVs, they are doing so more slowly than their counterparts elsewhere. Due to a lack of charging infrastructure and the high cost of electric vehicles, some Indian automakers are reluctant to make the switch to electric cars.
Several large automakers are entering the EV market in India: Tata Motors, Mahindra & Mahindra, TVS Motor, and Bajaj Auto, all of which have the capability of increasing production volumes, Mehta said.
Government initiatives, including Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME-II) and state policies to promote EV production in particular, will result in an increase in production of EVs, particularly two-wheelers, buses, and three-wheelers.
As a result of the FAME-II scheme and individual State subsidies, Phokela said the government has addressed the need for electric vehicles in the country.
According to him, even on a production-related level, incentives from the government had helped automakers produce EVs more economically. He added, however, that government might now consider providing incentives for automobile dealers to build showrooms and encourage EV sales on the ground.
Cut import duties may also be considered by the Indian government as a means of attracting foreign players. EVs are subject to a 100 percent import duty in India if their CIF value is more than $40,000 (cost, insurance, and freight) and a 60 percent duty if their CIF value is less than $40,000.