Will China become the cat among India’s EV pigeons?

Cheap but efficient Chinese electric vehicles (EVs) have sent a scare in the US and Europe. Many have predicted doomsday scenarios. The Alliance for American Manufacturing has said that government subsidized Chinese EVs “could end up being an extinction-level event for the U.S. auto sector”. Earlier this year, Tesla CEO Elon Musk told industry analysts Chinese EVs are so good that without trade barriers, “they will pretty much demolish most other car companies in the world.”

The US has decided to shield itself from the Chinese EV onslaught. President Joe Biden has announced a series of new and increased tariffs on several Chinese-made goods. He quadrupled the tariff on electric vehicles made in China from 25% to 100%. Chinese lithium-ion batteries for electric cars will now face a 25% tariff, up from 7.5%. Since many European car makers manufacture in China and sell in Europe, they are appealing against similar tariffs on Chinese EVs.

Also Read: China may dump EVs, batteries into India with higher US tariffs: GTRI

With the US raising tariffs on Chinese EVs, India may become a dumping ground for those. “The raising of tariff on EVs, batteries and many other new technology items by the US may push China to dump these products in other markets including India. It’s a moment for India’s Directorate General of Trade Remedies to remain vigilant,” economic think tank Global Trade Research Initiative (GTRI) said. China has already replaced the US as India’s largest trading partner in FY24 with $118.4 billion two-way trade.

How China got its EV edge

The US is the pioneer in EVs. As recently as 2016, the US had more EVs on the road than China did. But China has slowly and resolutely grown its EV industry to now beat the US. Behind China’s EV edge is not just low wages, but a host of other factors too. It isn’t just that China accounts for six-in-10 of every EV sold worldwide, it also dominates the supply chain for the critical technology inside them: Lithium-ion batteries. China holds between 85% and 95% of production capacity for each of the major components of batteries, as well about 70% of global lithium refining capacity, according to Bloomberg NEF. In 2001, Beijing launched an R&D program to develop batteries, motors and other EV-related technologies. This industrial policy, aided by supportive domestic banks, was matched about a decade later with the rollout of generous subsidies encouraging Chinese drivers to buy EVs. Importantly, imported EVs didn’t qualify for subsidies (and were subject to tariffs) and manufacturing subsidies were also conditioned on local content requirements.Also Read: Stellantis considering India manufacturing of affordable EVs

China has strategic reasons to pursue vehicle electrification, beyond fostering export industries, Bloomberg has reported. EV take-up can help clear the air in China’s cities as well as mitigate climate change (albeit, more effectively if the country reduces its high dependence on coal-fired electricity). EVs also offer a hedge against China’s dependence on imported oil which, at roughly three-quarters of its consumption, is a higher share than it ever was for the US, even at its peak in the early 2000s.

Now with its huge EV overcapacity and a fully grown local ecosystem that can even defy tariffs to beat local EV markets in many Western countries, the Chinese EV industry is seen as a threat in developed auto markets. India, which has just started off its EV industry and is taking baby steps, can be a target for the Chinese EV industry besides those in Europe, Latin America and Southeast Asia.

Leapmotor’s cheap hatchback and SUV to roll into India

The world’s third largest carmaker, Stellantis, which is based in Amsterdam and owns several brands including Chrysler, Citroën, Fiat and Jeep, is considering locally manufacturing affordable electric vehicles from its Chinese joint venture partner Leapmotor at its facility in Thiruvallur, Tamil Nadu. Stellantis is already manufacturing EVs in Thiruvallur under the Citroën badge and has sold fleets of the eC3 car to several companies in India.

India announced a new policy on March 15 to encourage investment in local manufacturing of high-end electric cars. The government said it will allow the import of completely built-up electric cars that have a minimum cost, insurance and freight value of $35,000 (Rs 29.2 lakh) at 15% import duty for a period of five years if companies make a minimum investment of $500 million to start local manufacturing. But Stellantis’ newly formed JV with Leapmotor, Leapmotor International, could avoid tariffs by manufacturing EVs locally. “While it is too soon to say, but as we both know the tariffs to import CBUs in India are very high. Most probably, if we are to bring Leapmotor to India, it would have to be through local manufacturing as it is for all the other brands we have.” Carlos Tavares, the chief executive of Stellantis, has told ET.

Stellantis had acquired an about 21% stake in Leapmotor for 1.5 billion euros in October 2023, paving the way for the formation of the JV company. The JV has exclusive rights to manufacture, sell and export Leapmotor vehicles outside of China.

Leapmotor will enter nine European countries in the first phase starting September. In the second phase, Leapmotor International will enter South America, the Middle East, Africa, India and the Asia Pacific regions.

The company is looking at introducing a small A-segment car, T03, and a D-segment vehicle, C10, to begin with.

The price of T03 currently starts below Rs 6 lakh. It is a small city car with dimensions of 3620/1652/1605 mm and a wheelbase of 2400 mm, as per CarNewsChina. In terms of powertrain, it has three e-motor variants: 40 kW, 55 kW, and 80 kW. It is also available with three battery options for 21.6 kWh, 31.9 kWh, and 41.3 kWh, which is good for a range of 200 – 403 km. Its price range in China is 49,900 – 89,900 yuan (6,900 – 12,425 USD). The price of SUV C10 currently starts below Rs 15 lakh. The medium-sized five-seater SUV, available in EREV and BEV versions in China, starts from 128,800 yuan (17,900 USD). Loaded with features, it measures 4739/1900/1680 mm with a 2825 mm wheelbase. Its different models have a range from 410 to 530 km.

India’s EV market set for a fierce war

India already has two Chinese EV makers: BYD, which imports from China, and MG Motor, which manufacture locally. Stringent checks imposed by the government have hindered BYD’s expansion in India, as it has faced difficulties obtaining approvals for its investment proposals, even with a local partner. However, MG Motor, a subsidiary of China’s SAIC group, was compelled to incorporate an Indian partner, Sajjan Jindal’s JSW, which acquired a substantial stake in the company, with plans to increase ownership to 51% in the coming years.

India’s EV market is small but growing very fast. In 2023, passenger vehicle sales grew 10 per cent year on year, but EV sales nearly doubled. Yet, EVs account for just 2 per cent of the overall passenger vehicle sales. In China, EVs have a large share of nearly 38 per cent.

Currently Tata Motors holds over two-thirds of the country’s EV market, but Mahindra & Mahindra and BYD are emerging players in the Indian market. Recording a 2476 per cent increase with just one model in its portfolio, Mahindra & Mahindra was the fastest-growing brand in 2023, followed by BYD and MG Motor. Maruti Suzuki, India’s biggest car maker, will soon enter the EV space. While Vietnam’s VinFast has just entered India, Tesla is also expected to arrive.

India’s EV ecosystem is barely emerging. Government policy incentives have attracted many players like Reliance New Energy, Ola, ACC Energy Storage to start EV battery manufacturing in India. Last month, Exide has tied up with auto majors Kia and Hyundai to supply EV batteries for their vehicles. It will take India several years to develop a local ecosystem which will bring down EV prices drastically. But Chinese JVs manufacturing in India, such as Leapmotor International, can tap into their Chinese ecosystem for know-how as well as components to gain an edge over their Indian rivals. To begin with, Leapmotor’s cheap hatchback is likely to raise competitive intensity.

Given the geopolitical situation between India and China, the government will remain wary of the Indian market being dumped with cheap Chinese EVs. Under new regulations, it can scrutinise any foreign investment with links to neighboring countries.

Yet, as the Indian EV market is set to grow at a fast pace (Counterpoint Research expects EV sales to constitute one-third of total PV sales by 2030), it will be a hot contest which can throw up new leaders.

(With inputs from agencies)

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