Latest EV policy positive for auto ancillaries, say analysts

Last week, in a bid to boost the Indian electric vehicle (EV) market, the government announced import duty concessions in the EV policy. Under the policy, which is effective immediately, companies that meet the requirements will be allowed to import up to 8,000 EVs costing $35,000 or more a year at a lower tax rate of 15 per cent. India currently levies a tax of 70 per cent or 100 per cent on imported EVs, depending on their value.

Further, while the limit for e-4Ws is capped at 8,000 per year, the carryover of the unutilised annual import limit is allowed.

Below are the other highlights of the EV scheme: 

The scheme also says that the maximum number of EVs imported as part of the scheme will be such that the total duty foregone will be limited to the lower levels to the extent of Rs 6480 crore, i.e., the maximum duty foregone per applicant and committed investment by the applicant. 

The importer needs to set up a plant in India with a minimum investment of Rs 4,150 crore (US$500 million) for manufacturing premium e-4Ws.

In addition, the policy comes with the condition of promoting manufacturing in India, stating that the plant needs to be operational within three years from the date of approval and should achieve a minimum domestic value addition (DVA) of 25 per cent within the same period. It is also required to achieve a DVA of 50 per cent within five years.

What does this EV policy mean for PVs/OEMs, and the auto ancillary industry in India?

Aditya Welekar, Senior Research Analyst - Auto and Metals, Axis Securities, told Zeebiz.com that the crux of the EV Policy lies in its strategic initiative to entice Global Original Equipment Manufacturers (OEMs) to establish local production facilities for electric vehicles (EVs), requiring a substantial investment of at least US$ 500 million. 

Also, the policy takes care of any kind of tax revenue loss and thus has- 

Stringent bank guarantee requirements to offset the foregone import duty.

Additionally, the expert sees the policy to be beneficial for the auto components industry in India as Centre’s emphasis on fostering local manufacturing, the restriction on imports to 8,000 units per annum, and the mandate for increasing localisation is seen to be favourable catalysts for them and present a favourable scenario for the auto component industry. 

“This strategic move is poised to bolster the ecosystem of local EV auto component suppliers, fostering healthy competition and facilitating access to cutting-edge technologies,” added Welekar. Further, the announcement is seen to be positive for stocks like Sansera Engineering Limited, Uno Minda, and Minda Corporation.

Further, the policy’s scope will have a limited impact on passenger vehicle manufacturers, or OEMs. This is given the policy's limited applicability to luxury vehicles valued above USD 35,000, wherein these players have a marginal presence.

Echoing a similar view, global brokerage Nomura said the new EV policy is positive for suppliers and will not impact local original equipment manufacturers (OEMs). Further, the entry of Tesla may help to build aspirations for EVs in India. The brokerage opines that it sees suppliers, including the likes of Sansera, Sona BLW, and Motherson, benefiting from the new policy push.

However, the move may not impact Indian OEMs, including Tata Motors and M&M, as they operate at much lower price points.

InCredit Equities continues to be overweight on the auto pack and is of the view that the plan to import a maximum of 8,000 premium EVs per year at a concessional rate will lead to a market penetration of nearly 20 per cent. The scheme is attractive for global new EV makers such as Tesla or recent EV joint ventures like Mahindra-Volkswagen in case they embark on setting up a plant.

There is a marginal disadvantage to incumbents like Mercedes and BMW’s ICE capacity and EV vehicles imported at high duty, it noted.

Furthermore, the brokerage sees the auto component sector as benefiting from the move. "In the case of companies already supplying EV vehicle makers globally, they can do near-shoring from India plants, and these include SAMIL, Bharat Forge, and Endurance Technologies. The new policy can help the auto component sector absorb high-end technology faster, as 50 per cent localisation is needed in five years," the brokerage added.

InCredit Equities, in its report dated March 17, has given a 'hold' view on M&M with a target set at Rs 1,765. Besides, for Samvardhana Motherson International, the brokerage has given an 'add' view with a target of Rs 133 per share.

Ishan Tanna, an independent research analyst on the EV policy, said that the plan is meant to get big companies from around the world to invest in making electric cars in India. This plan will let people in India get the newest technology for electric cars and also support the 'Make in India' effort. It will increase the manufacturing of electric cars, which will make them cheaper.