Significant investments are now under way at domestic and international vehicle companies in India, in component production, electric and hybrid vehicle production for the domestic market, and to facilitate rising exports across the world. This is being encouraged under the government’s strapline of “Make in India for the world.”

“Sunil Barthwal, the Indian government’s department of commerce secretary said in July last year that the EV industry had the potential to attract US$500 billion investment”

At the end of 2024, around US$40 billion had been announced to be invested in EV manufacturing in India through to 2030. At this time, around US$27 billion was reportedly due to be allocated to battery production alone. Also, according to the component manufacturing association in India (ACMA), suppliers are planning to invest US$7 billion through to FY 2028, in engines, electric motors, transmissions steering electrical systems including power control systems, and high strength steel; together these are understood to currently account for more than 75% of automotive parts imported into India at present.

While these figures sound impressive, US$40 billion is small compared to the ambition of Sunil Barthwal, the Indian government’s department of commerce secretary who said in July last year that the EV industry had the potential to attract US$500 billion investment. In practice, investment will almost certainly be rather less than this.

Government increases support for the EV transition in its latest budget
India’s support for the EV transition was encapsulated the 2019 initiative, FAME – Faster Adoption and Manufacturing of Electric Vehicles which gave a variety of incentives for consumers to buy EVs (including three-wheelers as well as cars) and for the development of the charging infrastructure. More recently it has extended support by encouraging the likes of Tesla (see more below) to invest in the country. As an early incentive it has reduced the tariffs on imported CBU EVs significantly, provided the companies importing EVs set up full manufacturing facilities within three years and reach certain production milestones in subsequent years. If these targets are not met, then the tax advantages granted can be clawed back from the recipient company.

In September 2024, the government allocated US$1billion (109 billion rupees) for incentives to consumers, public bodies and businesses to take up EVs; this initiative has its own new strapline, PM E-DRIVE, or Electric Drive Revolution in Innovative Vehicle Enhancement. Just under 40% of this fund will be to subsidise the purchase of electric two and three-wheelers, plus electric ambulances and trucks. A little over 40% will be allocated to public transport bodies for electric bus purchases.

Direct support for electric cars under this scheme is excluded and the government has been encouraging vehicle companies to set up scrappage schemes of their own, however, it is likely that the government will have to return to the idea of giving consumers incentives to buy electric cars. In FY2023-24 electric cars accounted for just 2% of total car sales, so there is a long way to go to reach three 20-30% penetration levels for EVs which it has been targeting.

“Tesla may be the next all-new investor in India, despite Donald Trump describing the idea of a Tesla plant in India as “very unfair”. Trump and Elon Musk have been complaining about India’s high tariff regime”

The Indian government has also used the latest budget, in February 2025, to encourage battery production and wider green initiatives. Specifically, it has exempted cobalt powder, lithium-ion battery waste, lead, zinc and another dozen or so critical minerals from import duty; this is to encourage the establishment of a complete battery supply chain. It has also exempted key materials used in the production of hydrogen electrolysers and solar photovoltaic cells from import duty, along with numerous items of equipment used to make batteries and other systems required for the green transition.

NewModelY_78

Tesla Modle Y

Source: Tesla

Tesla plans to import the Model Y to India from Germany, under a scheme which will allow it to pay a reduced rate of 15%, for 8,000 vehicles a year for five years

Potential new investors in India’s EV future
India is perhaps the largest underdeveloped automotive market globally and while the likes of Maruti-Suzuki and Hyundai are investing heavily, the potential remains for new investors, notably Tesla, Vinfast and possibly Chinese OEMs. Their prospects as of March 2025 are discussed below.

Tesla may be the next all-new investor in India, despite Donald Trump describing the idea of a Tesla plant in India as “very unfair”. Trump and Elon Musk have been complaining about India’s high tariff regime. Ahead of confirming its investment, Tesla plans to import the Model Y from Germany, under a scheme which will allow it to pay a reduced rate of 15%, for 8,000 vehicles a year for five years. This compares to the normal tariff rate of between 70-100%, with the tariff rate depending on the price of the vehicle. The lower tax rate would be levied on the expectation of Tesla opening a factory in India.

The latest draft rules on India’s tariff and investment regime requires companies to commit to Indian EV manufacturing that will need to achieve a minimum local turnover of US$577m (by the end of year four of operations) and reach US$866m by the end of year five to qualify for reduced tariffs. If a company claiming the reduced tariff rate falls short of these targets, it will pay penalties of 1-3% of the shortfall in revenue. Tesla is planning to invest between US$3-5 billion. To avoid tax advantages being clawed back, new investors must have started production by the end of year three, moreover, 25% local valued added must be achieved by year three and 50% by year five.

”One of the major questions regarding the Indian vehicle manufacturing sector is the future role of China. To date Chinese investment in India has been almost non-existent and political disputes between the two countries have led to the Chinese government currently banning Chinese vehicle companies investing in India, especially in EVs”

Vietnamese company VinFast is also planning an Indian factory. In February 2024 it announced plans for a US$500m investment to make EVs, with some reports also suggesting VinFast’s long-term investment could reach US$2 billion. The focus of this investment will be a factory in Tamil Nadu, which is rapidly becoming the centre of India’s growing EV sector. Initial capacity of 150,000 units per year will be installed, but if the investment reaches close to the planned US$2 billion then significantly more capacity will have been put in place.

Will Chinese EV producers invest in India?
One of the major questions regarding the Indian vehicle manufacturing sector is the future role of China. To date Chinese investment in India has been almost non-existent and political disputes between the two countries have led to the Chinese government currently banning Chinese vehicle companies investing in India, especially in EVs. If any production investments by the Chinese happen in India in the near future, these are unlikely to be in EVs, but rather in ICE or at best hybrid models. Current Chinese government policy actively discourages companies from technology transfer as much as possible, although this does not appear to have stopped BYD especially expanding in Europe where two factories are planned.

For Chinese companies, this amounts to a reversal of long-held plans. As recently as May 2023, SAIC was reported to be ready to announce investment of US$2 billion in India over the next decade, with the idea of making small cars and SUVs. Singaporean investors, JSW Ventures, were lined up to take a 35% stake in the SAIC investment in India (somewhat confusingly, SAIC already owned a 49% stake in JSW MG Motor India). The plan was to develop a 300,000 units per year factory in Gujarat, as well as a local R&D centre. However, this is now on hold but for how long is not clear.

Similarly, BYD’s potential investment in India has been postponed and for now it will only import vehicles into India. BYD has seen a US$1 billion investment plan first rejected by the Indian government, and now effectively “banned” by the Chinese government. It now plans simply to import around 3,500-4,000 vehicles a year while it waits for the political climate between the two countries to improve, facilitating a return to investment by Chinese companies.