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Budget 2023: EV Start-Ups seek abolition of customs duty for imported components

In addition to standardisation of battery packs, electric vehicle manufacturers hope for a well-defined battery recycling policy and elimination of import tax on lithium-ion batteries in the Union Budget 2023

Budget 2023: EV Start-Ups seek abolition of customs duty for imported components
POSTED ON February 01, 2023 1:09 PM

On November 1, 2021, while speaking at the UN Climate Summit COP 26 in Glasgow, Prime Minister Narendra Modi announced that India would achieve its net zero emission target by 2070. Earlier, while submitting its climate action plan under the Paris Agreement in 2016, the country promised to reduce its emissions per unit of Gross Domestic Product (GDP), by 33 to 35 per cent by 2030, compared to 2005 levels.

Achieving these ambitious targets will be possible only if the government takes a proactive stance in the reformation of sectors that contribute highly to carbon emissions. One of them is the automobile industry. According to various studies, traditional vehicles with internal combustion engines (ICE) annually contribute about 290 gigagrams of PM2. 5 with the transport sector responsible for around 8 per cent of total Greenhouse Gas emissions in the country. 

India is pushing this sector to switch gears to electric mobility, which will help it address issues like reducing the burden of oil imports, mitigating pollution, and adhering to its COP26 promises. Industry players hope that the Union Budget 2023 will introduce vital reforms to ease this transition and also incentivise stakeholders, including end-consumers in making EVs a part of their lives.  

Batting On Battery Standardisation

A major challenge facing the EV sector is the lack of standardisation for battery packs. Each 2-wheeler manufacturer has their own battery packs with different dimensions, connectors and production processes, making it tedious to own inventory and build on a wider scale. This is despite the growing adoption of EVs by end-consumers as well as enterprises like logistics companies. 

Aditya Vikram, the co-founder of Renon India
Aditya Vikram, the co-founder of Renon India

By 2030, India will need to invest $10 billion to increase cell production and refine raw materials to meet domestic demand for lithium-ion batteries for EVs. For now, industry players continue to import components, especially lithium-ion batteries, which bumps the pricing. 

Aditya Vikram, the co-founder of Renon India, hopes that the Union Budget 2023 will reduce the import tax on lithium-ion batteries. "Battery manufacturers are requesting a well-defined recycling policy and the implementation of rebates for R&D for battery recycling systems in India. They also anticipate the extension of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) II subsidy and the refinement of Production Linked Incentive (PLI) schemes in the Budget," he added. 

FAME II is a government scheme to promote EV sales by providing a subsidy of Rs 15,000 for end customers of two-wheeler EVs. Extending this subsidy will allow manufacturers to ensure their vehicles' affordability over two to three years when the lithium price is expected to rise. Once mass adoption is reached, the government can relook at the FAME schemes and, if necessary, withdraw the same.

Akash Gupta, CEO and co-founder of Zypp Electric, believed that extending the subsidies for at least another year would be the right step toward EV adoption, while helping the EV companies to scale their operations. 

"Many new battery standards that have lately come into play are also holding back the scale of adoption. In last year's Budget, the GST for the purchase or rental of EV was reduced from 18 per cent to 5 per cent, which gave the industry a boost. Few announcements on battery swapping policies in the previous Budget favored EV-as-a-service companies like us and it would be great to see similar policies in this direction," he optimistically stated.

Policies In The Right Direction

In addition to focusing on standardisation and types of battery packs, the government should also bifurcate policies for EV and battery swapping by introducing well-defined guidelines, standard operating practices (SOPs) and policies. Moreover, there is a need to regularise low and high-speed scooters.

Pratik Kamdar, co-founder of Neuron Energy, stated that owing to the rapid pace at which the EV sector is growing, remunerative funding is another need of the hour. Interestingly, in EVs the number of components used is lower. The sector is primarily run on an assembly business model at a battery pack level coupled with scooter manufacturing level. 

“In lieu of this, the majority of the funds raised are spent on working capital rather than capex. Also, a lot of the companies have stockpiled these fundings since they want to assess the industry's future development," Kamdar added. 

While the industry has received the administration's support through regulatory policy implementations like FAME I, FAME II, Automative Industry Standards (AIS), etc., companies look forward to the resolution of localisation challenges faced in the supply chain. This will give the much-needed impetus to indigenous manufacturers and ancillary suppliers who can support the government's vision of making Indian transportation electric by 2030. 

Akash Gupta, CEO and co-founder of Zypp Electric
Akash Gupta, CEO and co-founder of Zypp Electric

Zypp Electric’s Gupta, opined that EV start-ups in India are looking for larger pools of capital, but the economy still lacks large venture capitalists who understand the market. He hopes that the Union Budget 2023 will have some commitments or mandates of investments from the government.

Charging Up Funding

India's EV market is expected to increase at a 49 per cent CAGR between 2021 to 2030, while the segment volume may cross annual sales of 17 million, as per a report by Indian Energy Storage Alliance. However, funding remains a significant business challenge for start-up founders as their working capital requirement has increased significantly. 

Pratik Kamdar, co-founder of Neuron Energy
Pratik Kamdar, co-founder of Neuron Energy

Kamdar noted that though the key players in the sector managed to raise funding of around $300 to $500 million, smaller manufacturers are yet to crack lucrative deals. "They are facing difficulty in securing even $5 to $6 million fundraise. The global economic slowdown will also be a major concern for these companies," he rued.

Varun Goenka, CEO and co-founder of Chargeup, felt that there is a need to simplify the processes and boost the 'ease of doing business' in multiple cities by setting up dedicated EV start-up support systems and offering tax incentives for investors.

"This will enable EV start-ups to get better investments with a higher valuation. Investments in the EV sector and steps like setting up EV-specific funds should also be encouraged. India needs billions of dollars to be put into the ecosystem each year to achieve EV mobility goals, and incentivizing investments is the best way forward in this area," he emphasised.  

Creating a well-funded EV sector with adequate policy guidelines and support for innovation will automatically translate into India becoming a global EV hub. Gupta noted that there exist governmental start-up funds for VCs who invest the capital into start-ups. However, a dedicated capital allocation or Fund of Funds for the EV sector will help this domain accelerate faster. 

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