Why Global Automakers Not Building Electric Cars In India: Explained

Global carmakers are holding back from India’s new electric vehicle manufacturing policy despite incentives. The Scheme for Promotion of Manufacturing of Electric Passenger Cars (SPMEPCI), announced in March 2024, has not received a single commitment since guidelines were issued in June.

Policy Conditions Hard to Justify

The scheme requires manufacturers to invest at least ₹4,150 crore ($500 million) in India, backed by a bank guarantee of the same amount. In return, companies can import a limited number of electric cars priced above $35,000 at a concessional duty of 15 percent, provided they meet localisation targets of 25 percent in three years and 50 percent in five years.

On paper, this looks attractive. But the reality is different. The cars eligible for this concession fall into the luxury bracket in India. Demand for such expensive EVs is limited, making it hard for manufacturers to recover their investments.

Market Still Too Small

India’s EV passenger car market is at an early stage. Sales are rising, but volumes are still tiny compared to China, Europe or the US. Buyers in India remain price sensitive, with most interest focused on EVs under ₹20 lakh. The scheme’s focus on cars above $35,000 narrows the market even further.

For global brands, putting billions of rupees into factories to serve a small segment makes little sense. Without large demand, the return on investment looks weak.

And they are in position to fight for the budget segment. Perhaps, they are too busy worrying about the Chinese onslaught in their major markets so defending their core markets takes priority.

Missing Ecosystem and Weak Infra

Another reason for hesitation is the absence of a mature EV supply chain. Battery cells, advanced electronics and specialised components are still mostly imported. Setting up local plants without reliable suppliers nearby raises costs and complexity.

At the same time, India’s charging infrastructure is patchy. Fast-charging networks remain limited to big cities and a few highways. For global carmakers evaluating long-term prospects, the weak ecosystem and poor charging readiness raise questions about whether the market can grow fast enough to justify investment.

Trade Deals Add to the Wait

Carmakers are also waiting to see how Free Trade Agreements with the EU, UK and US unfold. These could reduce import duties over time without requiring upfront investments.

For example, the draft India-UK pact includes lower tariffs on cars from Britain after five years. Manufacturers prefer to wait for clarity rather than commit large sums now. This adds to the policy deadlock, with officials admitting that while companies have made enquiries, no one has filed proposals.

Tesla and the Policy Miss

Tesla was widely seen as the main target of this scheme. But the American EV maker attended just one meeting before the rules were finalised and has not engaged since.

Instead, it has started selling cars in India through the CBU route at full duties, showing the scheme does not match its priorities. The hurried launch of the policy before elections reinforced the perception that it was designed mainly to lure Tesla, but that opportunity has passed.

Where Things Stand

The high entry barrier also keeps smaller Indian EV makers out. Companies must have at least ₹10,000 crore in global automotive revenue and ₹3,000 crore in fixed assets to qualify.

This means the policy excludes most domestic start-ups while focusing on international giants who see little business case in India today. Critics say this design ends up encouraging imports of luxury cars rather than building mass-market EV capacity.

What Needs to Change

For India to attract real manufacturing investment, the policy may need major adjustments. Lowering the investment threshold, widening the scope to include affordable EVs, and offering support for supplier development and charging infra could make a difference.

Until then, global automakers are unlikely to see India as a priority for electric vehicle plants. The combination of a small market, limited demand for premium EVs, weak supply chain and poor charging network explains why the scheme has drawn no takers so far.