The electric vehicle (EV) market in India is on the verge of a major transformation, driven by policy shifts that aim to make EVs more affordable and attractive to both consumers and investors. One of the most significant changes in recent times is the reduction of import duties on electric vehicles and their components, announced in the Union Budget for FY 2024-25. This reduction is set to act as a catalyst for foreign investment, making India an increasingly lucrative destination for global EV manufacturers and investors.
India’s EV market has seen impressive growth in recent years, fueled by a combination of government incentives, consumer awareness, and a growing focus on sustainability. According to the India Energy Storage Alliance, the Indian EV market is expected to grow at a compound annual growth rate (CAGR) of 36% from 2021 to 2026, with the EV battery market itself expanding at a CAGR of 30% during the same period. The country’s growing urbanization, coupled with government support for green initiatives, has paved the way for a more promising EV landscape.
However, high import duties on electric vehicles and their components have been a major deterrent for foreign manufacturers looking to enter or expand in the Indian market.
In the latest Union Budget, the Indian government announced a reduction in import duties on fully built electric vehicles. The duty on imported EV components, such as batteries and motors, was also reduced, with the aim of encouraging foreign manufacturers to set up assembly units in India and drive down the cost of EVs for consumers. By lowering the entry barriers for global companies, India is positioning itself as an appealing market for international players, many of whom have been eyeing India’s vast consumer base and growing demand for green transportation solutions.
The reduction in import duties is expected to unlock a wave of foreign investment in India’s EV market, particularly from established global players who are looking for new growth opportunities. Tesla Inc., for instance, has long expressed interest in entering the Indian market but has cited high import duties as a primary hurdle. With the recent cuts, Tesla’s entry into India appears more plausible, which would not only provide consumers with more options but also catalyze further investments from global EV manufacturers.
In 2024, the revenue in the electric vehicle market is projected to reach a staggering US$786.2bn worldwide. Looking ahead, it is expected that the market will demonstrate a steady annual growth rate (CAGR 2024-2029) of 6.63%. This growth will ultimately lead to a projected market volume of US$1,084.0bn by 2029 (source: https://www.statista.com/outlook/mmo/electric-vehicles/worldwide).
The reduced import duties could encourage these companies to bring in more advanced EV models at competitive prices, further enhancing India’s EV ecosystem.
FDI and Manufacturing: A Symbiotic Relationship
One of the biggest advantages of reducing import duties is the potential to attract not just investment in vehicle sales but also in manufacturing and infrastructure. Global EV makers often seek markets where they can establish local manufacturing hubs to minimize costs and navigate trade restrictions. The reduced duties make India a viable option for setting up these hubs.
With the EV industry now emerging as a focal point of this investment, foreign companies are expected to accelerate the pace of their projects. By 2030, the Indian government aims for EVs to make up 30% of all vehicle sales, and FDI is a crucial component in achieving this target. India is on track to become the largest EV market by 2030, with a total investment opportunity of more than US$ 200 billion over the next 8-10 years (source: https://www.ibef.org/industry/india-automobiles).
Moreover, foreign companies investing in India will create significant employment opportunities, particularly in the areas of manufacturing, R&D, and EV infrastructure development.
A report by Invest India forecasts that India’s EV market could create as many as Additionally, the electric vehicle industry is projected to create around 50 million direct and indirect jobs by 2030, with much of this growth driven by foreign investments in local manufacturing (source: https://www.investindia.gov.in/team-india-blogs/indias-ev-economy-future-automotive-transportation).
The reduced import duties on EV components, such as batteries, motors, and other critical parts, will also lead to a more robust and localized supply chain. Many foreign companies are likely to partner with Indian manufacturers to set up assembly units or develop joint ventures, which will significantly enhance India’s EV production capabilities.
Battery Leasing and Swap Networks: An Emerging Opportunity
Another crucial area of growth that is gaining traction in India’s EV market is the development of battery leasing and swap networks. With the high upfront cost of EV batteries being a significant barrier for consumers, leasing models allow consumers to access EVs at lower initial prices. Instead of owning the battery, consumers can lease it from service providers, reducing the overall cost of ownership.
Battery swap networks further complement this by allowing users to quickly exchange depleted batteries for fully charged ones at designated swap stations, eliminating long charging times and range anxiety.
The rise of these innovative models offers foreign investors an additional incentive to enter the Indian market. Companies with such innovative and end-to-end ecosystem will be at the forefront of this growth. Global players will find opportunities to establish partnerships with local firms, leading to greater investment in charging infrastructure and battery technologies. This symbiotic relationship will help scale up battery manufacturing and swapping technologies, driving India’s EV adoption rate faster than anticipated.
As foreign companies flock to India, the country will not only benefit from increased FDI but also from job creation, technological advancements, and its emergence as a key player in global EV supply chains. The impact of these reduced import duties is clear: they will be the catalyst for foreign investment, helping India achieve its ambitious EV goals and solidify its position in the global EV market.
