Expectations of Electric Vehicle and Road-Infrastructure industry from Union Budget 2023
As the electric vehicle (EV) penetration rate increases across the globe including India, the installation of charging infrastructure needs to be significantly accelerated. According to a few reports, there will be about 10,000 EV charging stations operational for the public will be installed in the country by 2025. The demand and adoption rate of electric vehicles is increasing day by day due to alarming air pollution concerns and reduce the use of fossil fuels which is one of the major factors of increasing pollution. The government has also set an ambitious goal to electrify the fleet by 30% by 2030.
By 2022, the total sales of electric two-wheelers, three-wheelers, and four-wheelers vehicles in India will reach 1 million units per month.
The Society of Manufacturers of Electric Vehicles (SMEV) expectations with Union Budget 2023
The Association of Electric Vehicle Manufacturers (SMEV), the main body representing electric vehicle manufacturers in India, shared their expectations for the next 2023 budget. According to them, this upcoming budget will give a push to the EV industry and will increase the adoption rate of electric vehicles in India.
As per the members, the electric vehicle industry is growing faster and customer adoption is improving. SMEV recognizes and appreciate the various government's initiative to increase the adoption rate and -the popularity of electric vehicles among Indians through various initiatives ad benefits such as the FAME scheme, and exemption from road tax. However, other initiatives at the state level such as local research and development, inventory management, development of charging infrastructure by installing numerous public charging stations, and consumer awareness programs have been hampered by various other factors such as the pandemic, lack of charging infrastructure, and so on.
According to them, a few implementation steps such as a standard 5% GST should be applicable on all EV spare parts rather than on EVs, policy should be designed to support the electric commercial vehicles & e-tractors, battery swapping station, incentives for R&D, and so on.
What can we expect from the Union Budget 2023 to accelerate the growth of the Indian EV market?
The EV industry will witness major shifts and changes as India has set an ambitious goal to electrify its fleet by 70% by 2030.
First, Battery as a Service (BaaS) with disposable batteries reduces the initial cost of electric vehicles and allows customers to spend only on the battery usage instead of paying up front. Mobility BaaS Battery as a Service (MaaS) enables faster adoption of electric vehicles in last-mile fleet management operations. When it comes to the potential cost savings for EV financing, governments should include EVs in Preferred Business Loans (PSLs) to make EVs accessible to the business sectors and big industries as well.
Second, the government should consider reviewing tariffs, taxes, duties, and GST on lithium-ion batteries and battery packs, lithium-ion batteries, and electric vehicle parts. However, the revised rates should relate to the volume and duration of imports.
Third, as the GST rates for logistics and last-mile service providers are high, the introduction of tax breaks and incentives will accelerate the adoption rate of electric vehicles. In e-mobility, subsidies and incentives are expected to be reviewed, especially for light commercial vehicles.
Fourth, exemption from 18% GST on lithium-ion cells, battery components, and battery packs from the tax to increase the manufacturing rate of EV batteries in the country. Sales-based incentives should be introduced to accelerate the growth of battery production.
Finally, government financial incentives should not be limited to the numbers promised by the manufacturer, but should be used in terms of security, stability, and rapid charging services with management software to provide the best service to the end user.
EV industry in India
The Indian electric vehicle industry has grown exponentially in recent years. Many new startups are emerging day by day in the EV industry.
There are currently more than 350 electric vehicle manufacturers operating across the country, including all big OEMs and growing startups.
There are currently more than 1.4 million EVs running on Indian roads, with an impressive adoption rate of 4% by 2022, up from 0.7% in 2019. By 2030, annual EV sales are expected to grow with a total increase in the number of 14 million to 16 million units.
The total market share of electric vehicles is expected to grow significantly from 2% today to 40% in 2030.
Manufacturers of various EV components have made great strides in developing advanced, proprietary battery technologies as EV production increases.
We have seen a substantial rise in the adoption rate of EVs, possibly because of the benefits and incentives EV buyers avail of under the government's FAME II policy. Under this program, the government has allocated a budget of Rs. 10,000 crores in the form of incentives and subsidies to support 1 million two-wheelers electric vehicles, 500,000 electric three-wheelers, 55,000 electric passenger vehicles, and 7,000 electric buses. There are currently over 130 FAME II-approved EV models including E2W, E3W, and E4W platforms from over 50 registered OEMs.
In terms of the current industry tax situation, electric vehicle buyers are subject to a 5% GST, while lithium-ion and lithium-ion batteries are subject to a 20% base sales tax.
The government has introduced a 15% import tax due to the growing demand for parts for electric vehicles.
In addition, import duty and GST for battery components are 5-10% and 18% respectively. All these benefits have a great influence on the production and sale of batteries for electric vehicles.
The current valuation of the Indian electric vehicle market is $3.21 billion and is expected to increase up to 30x by 2030. As per the figures, E2W will account for 40-50% of by 2030 and E4W will account for 15-20% by 2030 in terms of EV adoption. Given the projected revenue pool, automotive OEMs represent 40-50%, battery manufacturers 13%, and charging infrastructure 8%.
