How new EU tariffs soon after US curbs could push Chinese EV makers to join forces with Indian firms

The substantial increase in import tariffs in the US and the EU — two biggest markets for EVs after China — have raised concerns over India becoming a dumping ground of Chinese EVs and batteries. While some experts are of the opinion that the Indian automobile industry may change with large-scale entry of Chinese auto firms, others see a strong possibility of Chinese automobile-makers aggressively seeking partnerships with Indian firms to make and sell EVs in India.

Some, though, feel that dumping of Chinese-made automobiles in India may not be possible as import duties for such vehicles are very high.

In a press statement Wednesday, the European Commission said, “as a part of its ongoing investigation, it has provisionally concluded that the battery electric vehicles (BEV) value chain in China benefits from unfair subsidisation, which is causing a threat of economic injury to EU BEV producers”.

While the Commission has reached out to Chinese authorities to discuss these findings and explore possible ways to resolve the issues, the provisional countervailing duties in the range of 17-38 percent will come into effect 4 July onwards, should these discussions not yield an effective solution.

These duties would be in addition to the ordinary import duty of 10 percent levied by the EU on imports of BEVs.

In a recent policy change, India reduced import duty on EVs to 15 percent for all EV makers, including those from China, albeit with a caveat that they would have to set up a local manufacturing unit within three years in order to avail the lower tariffs.

Asked about the impact on the tariff increase by the US and the EU, Puneet Gupta, Director Automotive at S&P Global, said, “India has maintained a high import duty structure of 70-100 percent, making it impractical for Chinese manufacturers to export cars to the Indian market.”

“However, one strong emerging possibility is that Chinese companies might aggressively seek partnerships with Indian firms to build and sell cars locally using Chinese technology. A recent example of this is the Jindal-MG partnership,” Gupta added.

In March, Chinese firm SAIC Motor sold a 51 percent stake in its subsidiary MG Motor India to a group of Indian investors led by the JSW Group. In the resulting joint venture company, called JSW MG Motor India Private Ltd, the other Indian investors together hold an 8 percent stake, while the employees of MG India hold 5 percent, and MG India’s dealers hold 3 percent.

In an email to ThePrint, Ajay Srivastava, co-founder of policy think-tank Global Trade Research Initiative (GTRI) said that with the US and the EU announcing steep tariffs, the anti-subsidy probes into Chinese EVs and other restrictions on their import, China has diverted its attention to Southeast Asian markets, including India.

“The plan is to export EVs directly and also make EVs in India using 80-90 percent of inputs from China. India market entry provides a much-needed relief for Chinese firms. Just one joint venture between SAIC Motor and India’s JSW Group aims to sell over 1 million new energy vehicles by 2030. This joint venture loudly announced its aim to recreate the Maruti Suzuki moment for EVs in India,” he said.

Hence, in the next few years, every third EV and many passenger and commercial vehicles on Indian roads could be made by Chinese firms in India alone or through joint ventures with Indian firms, he added.


Also read: Tariff hike vs lower import duties — US, India take different routes to boost domestic EV production


India & China’s EV ties

In an April 2024 report, think tank GTRI had noted that India’s decision to allow Chinese car makers and cutting import tariffs on EVs would benefit Chinese manufacturers directly or indirectly as China is the dominant supplier of EV batteries. “Supply chain dependence on China will sharply increase even when non-Chinese companies (Tesla, VinFast) set up shop in India,” it said in the report.

GTRI’s Srivastava added the large-scale entry and market dominance of Chinese automakers into India will impact the domestic auto/EV manufacturers, firms working in EV value chain space and battery development. According to him, nearly a quarter of India’s auto component imports currently come from China. The dependence on China will increase sharply as more Chinese firms making cars in India will import most parts and components from China.

“The Indian government and industry stakeholders will need to carefully manage the risks of over-reliance on foreign manufacturers and potential trade imbalances…,” he said.

Another industry expert, who wished to not be named, reasoned that dumping of Chinese-made automobiles in India may not be possible since import duties are very high, and any investment by Chinese companies under the new EV policy is likely to be closely scrutinised before getting approval from the government. Since China is a bordering country, as per rule, any investment into India requires mandatory government approval.

Last year, the government rejected a USD 1 billion investment proposal from Chinese electric car maker BYD to set up an EV manufacturing plant in India along with its Hyderabad-based partner Megha Engineering and Infrastructures Ltd. Similarly, it was reported in 2022, that China’s Great Wall Motor dropped plans to invest USD 1 billion in India and laid off all employees at its India operations after failing to obtain regulatory approvals.

According to a media report, over the past four years — since April 2020, when the rules for bordering nations were brought in — India has approved 124 of a total 526 investment proposals, rejected 201 and about 200 are pending. Of the 526, a majority were from China.

Srivastava pointed out that SAIC Motors was not alone. Chinese car companies like BYD Auto, which has been in India since 2019, has made their mark in India by offering EVs, including buses, trucks, cars, and SUVs.

“Other Chinese companies, including Changan Automobile, Jinko Solar, and several bus and truck manufacturers like Zhongtong Bus and Foton Motor, also contribute to China’s automotive presence in India… Great Wall Motors and Haima Automobile are also looking to enter the Indian market, indicating an increasing Chinese influence in India’s automotive sector,” he said, adding that China’s automotive industry, buoyed by substantial state support, has rapidly advanced in EV technology, making it a leading exporter of EVs and related components.

(Edited by Tikli Basu)


Also read: New policy cuts import duty on EVs with certain riders, likely to benefit global automakers like Tesla


 


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