As global economic growth continues to fluctuate due to several factors, especially geopolitical crisis, the international electric vehicle (EV) market is undergoing a seismic shift, driven by the United States (US), European Union (EU) and Canada imposing high tariffs and restrictions on imports of EVs and parts from China.
These regions make up about half of China's global EV exports, meaning these measures could leave China's once-thriving production lines eerily quiet. In a strategic pivot, China is moving its production to the Association of Southeast Asian Nations (Asean) countries and setting its sights on India.
India, however, is at a crossroads. Unlike other countries, it faces unique challenges in adopting EVs on a large scale. Instead of rushing into the fray with heavy incentives or falling into dependence on Chinese imports, India has the opportunity to let its EV sector evolve naturally, said the Global Trade Research Initiative (GTRI) in its recent report.
The think tank stated, "By allowing market forces to steer the sector's growth, India can avoid becoming an "EV colony" for China and carve out its own path in the global EV landscape."
A Strong Global EV Powerhouse
In 2023, China emerged as a dominant force in the global EV market, exporting 1.6 million EVs valued at USD 36.7 billion. The EU and the US were significant buyers, with China exporting EV parts worth USD 19.5 billion to the EU and 438,000 EVs valued at USD 9.1 billion. The US imported USD 10.4 billion worth of EV parts and USD 357 million worth of EVs from China. Additionally, the US imported batteries worth USD 19 billion, hybrid EVs worth USD 6.9 billion, and plug-in hybrid EVs worth USD 6.9 billion in 2023.
Notably, the USA, EU, Canada, and other countries are promoting a switch to EVs to reduce pollution and achieve green goals by offering incentives. However, as China became the largest producer and exporter of EVs by using high subsidies and controlling battery raw materials, it began to replace local production in these countries.
“This led to the imposition of restrictions by the USA, EU, and Canada on imports of EVs and parts from China,” according to the GTRI report prepared by Ajay Srivastava, founder, GTRI.
The US increased tariffs on Chinese EVs from 25 per cent to 100 per cent in May 2024, with the higher duties still under review, pending public comments. The EU announced plans to impose additional duties on Chinese EVs, with some models facing tariffs of up to 38 per cent on top of the existing 10 per cent tariff. Canada followed suit by imposing a 100 per cent tariff on Chinese EVs and a 25 per cent duty on Chinese steel and aluminium.
In response, China is shifting its production and assembly units to other countries, starting with Asean nations and India. These units would still depend heavily on imports from China, with 70 to 80 per cent of parts, including batteries, coming from there. Thailand, the first to allow local production by Chinese firms, is already facing challenges with rising imports and complaints of lower sales from established manufacturers.
India’s Unique EV challenges
Talking about India's unique challenges in adopting EVs at large scale, the report stated that with over 80 per cent of its electricity generated from fossil fuels like coal, the environmental benefits of EVs could be diminished, as charging EVs using this energy mix may not be much greener than using traditional internal combustion engine vehicles.
“Frequent power cuts could also lead to battery charging using diesel generators, further reducing the environmental advantages. Without a shift to cleaner energy sources, the overall impact of EV adoption in India may fall short of expectations,” it added.
Additionally, EV production, particularly battery manufacturing, has a high carbon footprint, starting from the mining stages. Also, the scarcity of essential raw materials for batteries could lead to supply constraints and higher costs, and their extraction often involves environmentally harmful practices and ethical concerns, like child labour in cobalt mining.
Moreover, 80 per cent of an EV's cost could be attributed to batteries and components produced by China, deepening India's dependence on China. This reliance might persist until new battery technologies replace lithium-ion batteries. There's also a risk that China might dump excess EVs in India as access to developed markets becomes tougher.
The report suggested, “India should learn from Thailand's experience, where leading Chinese firms such as BYD, SAIC Motor and Great Wall Motors have set up assembly plants and production lines, leveraging Thailand's established automotive industry infrastructure.” However, the increasing dominance of Chinese EV firms has raised concerns about the competitiveness and sustainability of local automotive manufacturers and suppliers.
Several reports indicate a significant drop in orders for locally produced auto parts, with some suppliers experiencing up to a 40 per cent reduction in business.
India’s EV Plans For Global Firms
India has allowed domestic operations to leading Chinese EV and passenger and commercial vehicles makers. Chinese EVs are likely to flood the Indian market in the coming years. A notable example is the JV between China’s SAIC Motor (owner of the MG brand) and India’s JSW Group, which aims to sell over one million new energy vehicles by 2030. This JV aspires to recreate the "Maruti Suzuki moment" for EVs in India, potentially leading to every third EV on Indian roads being manufactured by Chinese firms, either independently or through partnerships with Indian companies.
Like many Asean countries, India has also reduced import duties on EVs from 70-100 per cent to 15 per cent for vehicles with a cost, insurance, and freight (CIF) value of US$ 35,000 and above. This concessional duty is only applicable to original equipment manufacturers (OEMs) who commit to a minimum investment of USD 500 million to establish local manufacturing within three years.
“Such OEMs can import up to 40,000 vehicles over five years. While this move aims to attract investment and technology transfer, it also opens the door for Chinese firms to capitalize on these incentives,” according to the report.
Indian Consumers And EVs
A survey by Deloitte revealed that 52 per cent of Indian consumers express a preference for EVs with a range between 200 and 400 kilometres per charge. In 2023, 53 per cent of respondents expressed a preference for such vehicles, a figure that fell to 49 per cent in 2024. This decline is indicative of the evolving consumer mindset towards sustainable transportation options.
Online consumer pulse aggregator platform, LocalCircles' survey stated that only 5 per cent of those looking to purchase a four-wheeler in the country are likely to buy an electric car this year. The survey also found that more than half of the "existing or prospective car owners" are willing to buy an electric car if it is available in the Rs eight to 10 lakh price range.
Car sales in India exceeded four million units last year, while 72,321 electric four-wheelers were registered. If 5 per cent of the existing/prospective car owners, as found in the survey, purchase one car each and the annual car sales maintain the 2023 numbers, it indicates a demand for 200,000 electric cars this year, LocalCircles said.
Of the 40,000 respondents who participated in the survey, conducted over three months, 42 per cent are from tier 1 cities, 34 per cent from tier 2, and the remaining 24 per cent from tier 3, 4, and rural areas. About 21 per cent of the respondents flagged "not enough electric car charging stations in my area/city/town", while 12 per cent said they "don't know enough about these vehicles", according to the survey, explaining the relatively low interest for e-four-wheelers.
About seven per cent of respondents indicated "not enough choices of models within budget", while 21 per cent felt e-cars are "more expensive as compared to regular cars", the survey said. Experts say people want to buy electric cars for the driving experience also as there is no engine sound and very little NVH (noise, vibrations and harshness), which makes the cabin very quiet and comfortable, the survey stated.
