The Indian government's push to boost domestic manufacturing of electric vehicles (EVs) may lead to large-scale entry of Chinese auto firms in the local market, a report by think tank GTRI said on Sunday.

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China's automotive industry, buoyed by substantial state support, has grown rapidly in electric vehicle technology, making it a leading exporter of EVs and related components, the Global Trade Research Initiative (GTRI) said.

The renewed policy push to make India a hub for e-vehicle manufacturing and efforts of the private sector will lead to a sharp increase in dependence on auto component imports from China, the report said. India's auto component imports were USD 20.3 billion in 2022-23 of which 30 per cent came from China.

As the EVs are getting greater focus in the country, the auto component imports from China may increase further because it has a greater hold over the EV components' global supply chain.

According to estimates, China has 75 per cent of the world's battery production capacity and battery accounts for 40 per cent of the cost of an EV. It also accounts for more than 50 per cent of global EV production and exports.

The report said that in the "next few years, every third electric vehicle and many passenger and commercial vehicles on India roads could be those made by Chinese firms in India alone or through Joint Venture with Indian firms". GTRI founder Ajay Srivastava said that Indian market entry provides a much-needed relief to Chinese firms.

"China's EV exports to the European Union and the United States are declining due to anti-subsidy probes and increased trade restrictions over the export of subsidised cars/EV batteries," he said.

JSW MG Motor India, a joint venture between China's SAIC and Indian conglomerate JSW Group, has recently announced an investment of Rs 5,000 crore to enhance production capacity and launch one new car every 3-6 months starting September.

Last year in November, China's largest automaker SAIC Motor inked a joint venture (JV) agreement with the JSW Group to accelerate the transformation and growth of MG Motor in India.

The JV aims to sell one million units of passenger electric vehicles in India by 2030 when the total market is expected to be 10 million units annually. MG Motor is a British brand owned by Shanghai-headquartered SAIC Motor.

GTRI said that SAIC Motors is not alone, as other Chinese car companies like BYD Auto have made their mark in India by offering electric vehicles, including buses, trucks, cars, and SUVs.

"Other Chinese companies, including Changan Automobile, Jinko Solar, and several bus and truck manufacturers like Zhongtong Bus and Foton Motor, also contribute to  China's automotive presence in India," Srivastava said, adding that Great Wall Motors and Haima Automobile are also looking to enter the Indian market, indicating an increasing Chinese influence in India's automotive sector.

He said that China's automotive industry, buoyed by substantial state support, has rapidly advanced in electric vehicle technology, making it a leading exporter of EVs and related components.

As per the report, the automobile industry in India contributes 7.1 per cent to the country's GDP, up from 2.8 per cent in 1992-93. It provides direct and indirect employment to over 19 million individuals.

"The large-scale entry and market dominance of Chinese automakers in India will impact the domestic auto/EV manufacturers, firms working in EV value chain space, and battery development," the report said, adding currently, nearly a quarter of India's auto component imports come from China.

The dependence on China will increase sharply as more Chinese firms making cars in India will import most parts and components from China, it noted.

"China has firm plans to increase its presence in India in the passenger vehicle and commercial vehicle segments, after flooding the market with e-rickshaws and two-wheelers," it added.

The report suggested that the government and industry stakeholders will need to carefully manage the risks of over-reliance on foreign manufacturers and potential trade imbalances.

"India's decision to allow Chinese car makers in India and cutting import tariffs on electric vehicles (EVs) will benefit Chinese manufacturers directly or indirectly being the dominant suppliers of EV batteries. Supply chain dependence on China will sharply increase even when non-Chinese companies (Tesla, Vinfast) set shop in India," Srivastava said.

India has recently announced an EV policy. It has announced to cut down import duty on electric vehicles (four-wheelers) from 70-100 per cent to 15 per cent if a foreign company would invest a minimum of USD 500 million in the country in the sector.