Auto component makers to gain from new 4-wheeler electric vehicle policy

The new four-wheeler (4W) electric vehicle (EV) policy may spur the entry of global majors.

The manufacturing policy cuts Customs duty to 15 per cent, given a minimum investment commitment.

It calls for a minimum investment of Rs 4,150 crore (about $500 million) for making electric four wheelers (e-4Ws), with manufacturing to commence within three years of approval.

In addition, auto makers must target domestic value addition of 25 per cent by the third year and 50 per cent localisation by the fifth year.

Under the new policy, e-4Ws may be imported with a minimum value of $35,000 (including freight and insurance), at a Customs duty rate of 15 per cent for a period of five years.

The maximum number to be imported at this tariff is 8,000 units per year and carry over of unutilised annual imports is permitted.

This could attract EV majors like Tesla, which has stated it is looking for another global manufacturing facility.

The Tesla facility in China exports over a third of the output.

Hence, competition in this space could hot up with the new policy.

Vietnam's Vinfast had already committed to setting up an Indian facility.

Currently, all Indian ancillary makers are not capable of supplying EV-specific components.

However, some component makers like Sona BLW Forgings and Samvardhana Motherson International supply to global EV original equipment manufacturers (OEMs).

If India becomes a manufacturing hub, it stands to benefit and other ancillary firms could also enter the space.

In two-wheelers, Ola Electric's EV market share has risen from 32 per cent (April 2023-November 2023) to 40 per cent (December 2023-February 2024).

In states like UP, Delhi, Haryana and West Bengal, its market share in February rose to above 55 per cent, with Delhi at 61 per cent and Lucknow at 90 per cent.

Price cuts of Rs 25,000 for some models since December 2023 may have spurred this increase.

There s consolidation with Bajaj Auto market share up by 4 per cent and Hero MotoCorp up 50 basis points (bps).

Ather Energy and TVS Motors lost 250 bps and 130 bps share, respectively.

Smaller players dependent on the FAME II subsidy lost ground as the subsidy was reduced.

As Bajaj Auto and TVS Motors ramped up the EV distribution network, they could gain more market share.

Notably, many Indian OEMs offer e-4Ws below the $35,000 minimum cut off.

There are competitive risks to upcoming models of Mahindra and Mahindra (M&M) and Tata Motors at the upper end of the SUV market.

This could potentially impact sales of luxury German brands with mid-to-premium EVs unless they also avail this scheme to set up local facilities.

Import of EVs priced below $35,000 would continue to attract duties of over 70 per cent.

It is to be seen how many global car makers sign up for the new policy.

In absolute terms, 8,000 EVs/year could be a significant share of the top-end market (not only EVs but internal combustion luxury vehicles as well). However, it could spur competition in the top-end category.

In the auto-ancillaries segment, the localisation clause may lead to new opportunities, which could actually be the place where stock market investors should focus on.

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