Mercedes-Benz, the leader in India's luxury vehicle market, has announced plans to introduce the EQS saloon later in the year. The car is likely to be priced closer to its petrol equivalent.
Even as Tesla is holding out for India to lower import duties on electric cars, rivals such as Mercedes-Benz, and Volvo are seeing a bigger opportunity in assembling these cars locally. Taxes on locally assembled electric cars add up to 45% versus 110% on imported models, making them more affordable for consumers in India and a better business model for companies, an analysis by ET showed.
India’s market for luxury electric vehicles is getting hotter, with the likes of Mercedes-Benz, Audi, BMW, Volvo lining up a slew of launches and state governments making a beeline to support Tesla's entry into the country.
While Tesla is still undecided about the India entry, as the Model S manufacturer hasn’t got any assurance on its demand for a cut in import tax on fully built vehicles, the other luxury automakers that are already present here are banking on the lower GST on EVs and local assembling to push their vehicles here. The tax breaks allow them to sell some of the electric vehicles at prices on par with their fossil fuel-powered variants.
Mercedes-Benz, the leader in India’s luxury-vehicle market, has announced plans to introduce the EQS saloon later in the year. The car is likely to be priced closer to its petrol equivalent.
Audi has kicked off a study to check the feasibility of local assembly of EVs, while Swedish rival Volvo Cars is also exploring the same strategy. BMW, meanwhile, is seeking a duty cut on fully built imported vehicles, just like Tesla, but “for a limited period” as it is also considering localisation.
A GST rate of just 5% for electric vehicles — it is as high as 50% including cess for premium diesel or petrol-powered passenger vehicles — is a key enticement for automakers to bring in EVs.
Also, the basic customs duty on completely knocked down (CKD) kits, which are then assembled locally, is around 40% for petrol, diesel or even electric cars. For completely built units (CBU) imported from foreign plants, it is 66-110% depending on the value of the car. Both combined, a locally assembled EV enjoys 26-70% benefits on cost compared with an imported CBU of the same model. On top of this, several states have scrapped road tax on EVs, which is also encouraging the luxury-car makers to bring in more models.
“The current GST benefits allow electric cars to be priced competitively closer to ICE (internal combustion engine), however it applies to both CBU and CKD vehicles,” said Martin Schwenk, managing director at Mercedes-Benz India. But the differentiator is localisation. “Localisation has its distinct benefits as compared to importing via CBU route,” Schwenk said. “For EVs, just like our other high-end ICE vehicles, we see a business case for localisation as soon as we have sufficient sales volume.”
But experts say while the perceived benefits are high, the actual would be much lower at 20-30% after accounting for the expenses to set up a local assembly line, as well as cost towards other infrastructure and workers. This is one of the reasons Tesla is seeking to import CBUs to test the market first.
Gaurav Vangaal, associate director at IHS Markit says while the name itself will create a lot of excitement in the market place, however localisation and setting up an assembly plant is a very complex affair. A contract manufacturing may be a way out.
"For the most valued automotive brand in the world, investing in an assembly plant is not a big deal, its the complication surrounding a local set up for small volumes, which may be a big hurdle in the short term. The complexity of engineering products to meet local regulations like ground clearance, redesigning right hand drive version, managing intricate supply chain of kits, direct sales to consumers, finding local service partners - the list is long. Hence it is better off to import as CBU u ..