From SGST waivers to cheaper land, EVs rev up states' policy wars

States are competing hard to capture a larger share of investments in this fast-growing business

In a recent interview with Business Standard Tamil Nadu Industries Minister TRB Rajaa had only one thing to focus on: electric vehicles (EVs). He mapped out the steps the state government had taken to improve the EV ecosystem, from manufacturing to sales to charging. “We are looking to attract 30 to 35 per cent of whatever EV investment takes place in India by 2030,” he said.

If the numbers are to be believed, the state whose capital, Chennai, has been called the Detroit of India appears to be on the road to becoming the country’s EV capital, too. The state is home to the top three EV two-wheeler manufacturers in India — Ola Electric, Ather and TVS Motor. In addition, the state has major committed investments from players such as Hyundai Motor India and Renault-Nissan.

According to a report by CBRE South Asia, the country has received cumulative investments of around $28.8 billion in EV manufacturing between 2020 and the first half of calendar 2023, of which 30 per cent has gone to two states — Tamil Nadu and Maharashtra, with both attracting around $4.3 billion each. Industry experts highlight that in addition to specific policies, a pre-existing automobile ecosystem and access to ports may well be adding to the potential of these two states.

Though Tamil Nadu and Maharashtra lead the pack, as many as 26 states have EV-related policies but most of them focus on attracting consumer interest as the prospect of withdrawal of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles central subsidy to manufacturers looms.

Tamil Nadu is among the handful of states that are revving up the manufacturing side of the EV business. This may well be the reason 63 per cent of the investments in manufacturing since 2020 are spread across only six states — Tamil Nadu, Maharashtra, Karnataka ($3.2 billion), Gujarat ($2.3 billion), Uttar Pradesh ($2 billion) and Telangana ($2 billion).

“The subsidies being given by state governments are not highlighted enough and are very beneficial for original equipment manufacturers. Our home state of Tamil Nadu, for example, has not only demand-side subsidies, but also supply-side subsidies to encourage investment in TN. Other states have similar subsidies,” said Anirudh Ravi Narayanan, chief executive officer and co-founder, BNC, a Coimbatore-based EV manufacturer.

From the start of this decade, six states had come out with EV investment targets — Andhra Pradesh (~30,000 crore by 2024), Karnataka (~31,000 crore by 2022), Tamil Nadu (~50,000 crore by 2025), Telangana (~33,000 crore) and Uttar Pradesh (~40,000 crore by 2024).

Data shared by a Climate Trends report shows that as of December 2022, Andhra Pradesh has achieved 34 per cent (~10,400 crore) of its 2024 target, Tamil Nadu around 64 per cent (~31,960 crore) and Telangana around 16 per cent (~5,147 crore). Karnataka missed its 2022 target by 34 per cent (~22,400 crore). Data for UP is not available.

The Climate Trends report indicates that Tamil Nadu, Haryana and Andhra Pradesh also have the strongest supply-side incentives, with special incentives to boost manufacturing in the state. “Indian states are actively working to attract investments in the electric vehicle (EV) sector. Karnataka offers incentives like subsidies on fixed assets and tax benefits, along with 100 per cent exemptions on certain fees, while in Maharashtra and Assam, there’s no exemption on electricity duty, land conversion fee, stamp duty and SGST (state goods and services tax) reimbursement. Just like Karnataka, Uttarakhand, Uttar Pradesh and Tamil Nadu provide 100 per cent exemption. This exemption aims to incentivise energy efficiency and reduce the burden of electricity-related expenses on industries and consumers in these states,” said Sohinder Gill, chief executive officer of Hero Electric and director general of the Society of Manufacturers of Electric Vehicles.

In terms of investment incentives, Tamil Nadu is wooing investors by lining up 100 per cent reimbursement of SGST, an investment- or turnover-based subsidy, advanced chemistry cell subsidy, 100 per cent exemption on electricity tax for five years on power purchased from the state agency, and subsidy on cost of land.

Maharashtra, on the other hand, is offering the sector all the concessions that they have offered to D+ category of mega projects, which reportedly includes refund of a large share of total capital investment by a company through SGST waiver and interest subsidy. Among the major investments lined up in the state is a ~10,000-crore manufacturing unit in Pune by automobile major Mahindra and Mahindra. Maharashtra has also lined up a scrappage policy for EVs.

Following Elon Musk’s announcement that Tesla would be looking at India, Karnataka had sweetened its policy by offering 15 per cent capital subsidy on value of fixed assets over five equal annual payments (50 acres and above) and production-linked incentive of 1 per cent of turnover for a period of five years from the first year of commercial operations, among others. Among the major players who lined up investments in the state are Toyota Group, Elest (~14,255 crore) and Hyunet.

On installed charging facilities, too, Maharashtra and Tamil Nadu are leading from the front with 371 and 281 respectively. They are followed by Gujarat (278), Andhra Pradesh (266), Madhya Pradesh (235), Kerala (211) and UP (207).

Interestingly, though, the top investment destinations do not lead in terms of EV sales. Based on one industry estimate, 16 per cent of the EV sales in India came from UP in 2022, 13 per cent in Maharashtra, 9 per cent in Karnataka, 8 per cent in Rajasthan, 7 per cent each in Tamil Nadu and Gujarat, 6 per cent in Delhi-National Capital Region and 4 per cent in Assam. This, too, is mainly driven by state policies giving incentives to consumers.

A recent study by the Council on Energy, Environment and Water (CEEW) found that states with consumer incentives saw up to 2x better EV volume growth than those without. And that’s not all. Specifically, states with higher incentives saw up to 5x better e-two-wheeler sales than those with lower incentives. “In this regard, Goa, Gujarat and Assam have among the more attractive incentives for e-two-wheeler,” said Gagan Sidhu, director, CEEW Centre for Energy Finance.

India has set an ambitious goal of EV sales penetration of 30 per cent for private cars, 70 per cent for commercial vehicles, and 80 per cent for two- and three-wheelers by 2030. Based on a CEEW estimate, the country may require over $180 billion investment to develop the entire ecosystem by 2030.

By sweetening their policies every year, states seem to have kick-started the race to stay on top of this green new development.