Subsidies could spark interest in electric vehicle batteries
Jhe Ministry of Road Transport and Highways (MoRTH) now allows the sale and registration of electric vehicles (EVs) without built-in batteries. This benefits original equipment manufacturers (OEMs), energy service providers and other stakeholders. The move aligns with India’s goal of becoming an all-electric nation, drastically reducing vehicle pollution and oil import bills. It will preserve the environment, contribute to climate change initiatives, reduce import costs and benefit the national treasury, and boost the electric vehicle industry. There are, however, legal issues and implications for incentives for electric vehicles and batteries.
This is a progressive step as it enables the monetization of battery swapping technology, lowers the purchase price of electric vehicles and provides cost benefits for end users. Consumers can install replacement batteries in less expensive models than when buying vehicles and batteries together. It does, however, raise concerns about the applicability of Department of Heavy Industries (DHI)-approved incentives, the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme and the Production Linked Incentive (PLI) scheme for manufacture of advanced chemistry cells (ACC).
FAME-II provides demand-side incentives, a form of subsidy, to buyers and end-users as part of an initial reduction in the purchase price of EVs, calculated on battery capacity, i.e. say the energy content measured in KWh. FAME-II never considered supplying shells and batteries for electric vehicles separately, as the battery was the cornerstone of the program. This creates ambiguity about the applicability and calculation of demand incentives when batteries and shells are sold separately.
Under FAME-II, to be eligible for demand-side incentives, hybrid and electric vehicles must have a full warranty of at least three years to include the manufacturer’s battery and must have access to after-market service. adequate sale throughout the life of the vehicle. . Selling the shell and battery separately leads to additional ambiguity, as EV OEMs may not be able to provide warranties or service for batteries purchased separately by end users. This can lead to separate warranties and services for batteries and shells, which can be inefficient and costly. The government should allow some flexibility in this regard. Stakeholder representatives have raised the issue with DHI and MoRTH and are awaiting a response.
The PLI scheme offers production-related subsidies for each KWh and a percentage of value added on the actual sales made by manufacturers who set up production units. Currently, the demand for CPA is met by imports and the program aims to reduce dependence on these imports.
The application of the Goods and Services Tax (GST) will be problematic. The government reduced the GST rate on electric vehicles from 12% to 5% in 2019. The aim was to promote the adoption of electric vehicles by incentivizing different electric vehicle verticals. MoRTH’s decision does not indicate whether an electric vehicle without an integrated battery will still be classified as an electric vehicle and whether, for any non-outright purchase structure, the 5% GST rate will apply. Ideally it should. A response from DHI and MoRTH is also awaited.
These issues are indicators of a fast moving and aggressive market with strong government support. To keep pace with the growth forecast by the government, the policies and rules governing the sector must adapt quickly. The legislature and various relevant ministries must help catalyze the growing electric vehicle market.
To solve the difficulties, there should be incentives and subsidies for the purchase of batteries where the shells and the batteries are sold separately, because the battery remains the most expensive component of an EV. This also aligns with the goal of the FAME-II program, which is to reduce the overall cost of electric vehicles. An immediate proactive approach is needed to enact the appropriate legislative framework. The government has constantly tried to improve policies and infrastructure for electric vehicles. The aim is to put India on a par with other nations in green initiatives within the next three to four years. In the meantime, it is hoped that individual buyers will become the target market for EV battery manufacturers as EV prices drop.
Dipti Lavya Swain is a partner and Mishthi Seth is a partner at HSA Advocates.
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