EVs that import parts to get costlier as Budget gives a boost to in-house manufacturing

• Customs duty on equipment and machinery will remain the same to make EV batteries.
  
• There was no mention of initiatives for charging infrastructure in the budget speech.
  

There may be more pain than gain for EV makers and buyers from the Union Budget 2023-24. While the Finance Minister did extend the customs duty exemption for capital goods and machinery for lithium-ion manufacturing for EVs, she did make importing auto parts costlier for all automobiles. The net net effect may be that EVs might become costlier going ahead.

"To further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles," said finance minister Nirmala Sitharaman in her budget address.

The customs duty exemption is not a new initiative but an extension of the lower custom rates. This will help the local EV manufacturers keep the cost of products in check and also empower new players to manufacture battery cells and EVs.

Customs duty on electrically operated vehicles in completely built units (CBUs) form, other than with cost, insurance and freight (CIF) value of more than $40,000 (approx. ₹32.76 lakh), has been raised to 70% from 60%.

This could result in a slight increase in the prices of conventional and electric vehicles if imported in a partially disassembled state.

To reduce dependency and boost local manufacturing, the basic custom duty (BCD) on vehicles (including electric vehicles) in Semi-Knocked Down (SKD) form also increased from 30% to 35%.

However the corresponding social welfare surcharge (SWS) on these imports has been exempted.

Experts and EV players welcome the announcements

However, experts also say that it could boost domestic manufacturing – which the government has been promoting. It also encourages Indian EV to manufacture lithium-ion batteries within the country.

“One of the biggest components of EVs is the battery and the Budget provides for customs duty exemption on capital goods import required for manufacturing Lithium Ion battery cells. This is one of the most capital-intensive areas in the entire value chain and should go a long way in improving the viability of batteries and the electric mobility sector," said Somesh Kumar, Partner & Leader- Power, EY India.

Industry players also welcome the announcements, calling it a positive step for the fledgling Indian EV industry.

“The announcement in the Union Budget of extending concessional duty for lithium-ion cells will give an impetus to Indian manufacturers. With respect to the removal of customs duty on capital goods imported for manufacturing lithium-ion cells, this is a positive step, likely to benefit the Indian EV ecosystem in the long run,” said Narayan Subramaniam, co-founder and CEO, Ultraviolette Automotive.

“The indirect tax proposal and the proposal to continue the concessional duty on lithium-ion cells for batteries augur well for the sunrise industry, as it will help promote green energy and mobility, boost domestic manufacturing, encourage exports, and push greater adoption of electric vehicles,” said Mohal Lalbhai, founder and Group CEO, Matter.

Budget silent on incentives to set up charging infrastructure

However, the Budget has remained silent on incentives to set up charging infrastructure in the country. Currently, the FAME II scheme covers only electric two-wheelers, three-wheelers, and four-wheeled passenger vehicles for commercial usage and goods-carrying vehicles.

Last month, the Union Minister of Road Transport and Highways provisioned 137 charging stations on national highways, and many state governments are taking initiatives to provide charging infrastructure.