How policy uncertainty, other factors made Ford pull the plug on its EV PLI

Earlier this month, Ford India announced that it had dropped its plans to make electric vehicles (EVs) in India, which it intended to export, under the production-linked incentive scheme (PLI). Ford was among 20 companies that had signed a Champion OEM Incentive Scheme under the PLI project with the government in February this year.

The decision comes as a blow for the 4,000-odd employees at Ford India’s Maraimalai Nagar plant near Chennai and in Sanand, Gujarat. In September last year, the company had announced that it would exit the India market, which it had entered in 1995 through an on-again, off-again joint venture with Mahindra & Mahindra (they split in 1998, signed a JV in 2019 and split again in December 2020), retailing petrol and diesel brands such as the EcoSport, Figo, Aspire, and Endeavour. As part of its restructuring plans for India, the Dearborn, Michigan-headquartered automaker had decided to exit India, but was later considering its facilities to make EVs for the domestic and export markets. “After careful review, we have decided to no longer pursue EV manufacturing for exports from any of the Indian plants,” the company said in a statement, suggesting a comprehensive India exit.

That leaves its former employees with few options.  “When the company applied for the PLI scheme and lined up EV plans, we hoped that our jobs would be saved. Now, we are left with nothing but to finalise the compensation settlement with the authorities,” said an employee of the Chennai unit requesting not to be named.

Given that EVs will enjoy robust demand as climate change obligations kick in around the world, why did Ford exit an incentive scheme within three months of signing on? The company declined to comment beyond its official statement but industry analysts suggested that with operating losses of $2 billion in India and a market share of just 1-2 per cent, the US auto major prefers to invest in markets where it can fetch returns rather than markets that sink money like India. Rising raw material prices on account of the Ukraine war and China’s Covid-19 lockdown may have contributed to the decision.

“Ford has exited several Asian markets, and Australia, which were low in terms of ranking and profitability. In addition, lack of policy clarity in India may have also triggered the decision,” said Puneet Gupta, director-automotive forecasting, S&P Global. Though the government has slashed the goods and services tax (GST) on EVs to 5 per cent from 12 per cent in 2019, there is little clarity on how long this would continue.

This apart, unlike e-two-wheelers, the Indian market for electric cars is still small. April this year saw an over four-fold rise in e-passenger car sales to 2,659 units compared to 598 units in April 2021 but it still accounts for about 3 per cent of the total automobile market.

Apart from its modest size, the market is dominated by two players, according to data available with JMK Research. First mover Tata Motors accounts for 87 per cent of total registrations, followed by MG Motor India, which is owned by China’s SAIC Motor. “Other OEMs (original equipment manufacturers) are not yet focusing on India for EV passenger cars,” said Vinkesh

Gulati, president of the Federation of Automobile Dealers Associations. “The biggest player, Maruti, which has a market share of over 40 per cent (44 per cent), doesn’t have an EV. Mahindra, Kia and Toyota don’t have any products either. Once OEMs come out with products in the market for the dealers to sell, demand will pick up.”

Stellantis Group, the 50:50 merger between Italy’s Fiat Chrysler and France’s PSA group, plans to launch its first EV car in India next year but it is well aware of the speed breakers: Price and the fact that electricity generation in India is still mainly coal-based. “The challenge in introducing an EV is two-fold. One is the need to charge with clean electricity and the other is affordability,” the group’s Chief Executive Officer Carlos Tavares pointed out.

“There is a significant price gap between EVs and conventional technology. Basically an EV is 40-50 per cent more expensive than conventional technology,” he added.

Other than higher prices, range anxiety and battery availability may have been concerns before Ford and, indeed, may explain the reason most other automobile majors have not ventured into this market yet. Experts highlight that the government’s FAME (Faster Adoption and Manufacturing of [Hybrid] and Electric Vehicles) scheme has also given priority to two-wheelers and three-wheelers, the results of which are evident in the rising demand now. According to data available with the Council on Energy, Environment and Water, two-wheelers contribute to 54 per cent, three-wheelers around 41 per cent and four-wheelers around 4 per cent of EV sales in India.

The government has given priority to two-wheelers because they consume around 70 per cent of the gasoline requirement in India. After 2025, with companies like Reliance, Adani and Tata Chemicals betting big on batteries, more models will be launched in the market by several OEMs,” S&P’s Gupta added.

Gulati, too, believes that once dealers are able to showcase the product in showrooms, sales will pick up. But Ford, already under pressure from the poor performance in India, is clearly not in a position to wait that long.