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EU, US tariff hikes on Chinese electric cars could drive automakers to turn to India

Analysts told CNA that while there are some benefits from increased Chinese investment, New Delhi will be wary about giving too much market access to its rival.

EU, US tariff hikes on Chinese electric cars could drive automakers to turn to India
An electric vehicle (EV) on the road near India Gate in New Delhi, India on Aug 28, 2023. (Photo: Reuters)
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MUMBAI: Chinese electric vehicle (EV) makers could hasten their shift to India, said observers, following decisions by the European Union and the United States to raise tariffs on imported Chinese EVs.

However, observers noted that New Delhi will be concerned about giving too much market access to its rival despite benefiting from increased Chinese investment.

It will also want to avoid becoming a “dumping ground” for Chinese EVs due to the higher levies, which could harm Indian businesses in the same sector. 

“China is going to try and dump where it can. India has put up strong defences to prevent that kind of dumping,” Mr Utkarsh Sinha, managing director of boutique advisory firm Bexley Advisors, told CNA.

“But India is a growth market and India is an attractive market. There is going to be a way India and China can end up working together,” Mr Sinha added.

The EU announced last Wednesday (Jun 12) that it would impose tariffs of up to 38.1 per cent on Chinese EV imports. 

This was the result of an EU probe into alleged unfair state subsidies given to China’s car manufacturing industry that posed an economic threat to European rivals. It was also a bid by the bloc to tackle Chinese industrial overcapacity flooding the EU.

The level of tariffs set for specific EV makers depended on the level of state subsidies received by the firms.

The tariffs are set to kick in on Jul 4, but could be adjusted as Chinese companies have until then to provide evidence that could challenge the EU’s findings.

They come on top of an existing 10 per cent levy on cars imported into the EU.

Last month, US President Joe Biden announced a 100 per cent tariff on Chinese-made EVs to protect US manufacturers from cheaper imports. Both superpowers have been in a trade war for years.

INDIA’S EV SECTOR STILL NASCENT

Despite concerns about dumping, experts said the entry of Chinese carmakers presents opportunities for India.

Mr Sinha noted: “Moves like this create manufacturing hubs – whether it's India, Indonesia, Japan, those EVs need to go to the US or the EU from somewhere, and there's nothing stopping India from being the manufacturing base for these things. 

“And that can be a way of having a symbiotic relationship with China as well.”

Additionally, joint ventures with Chinese firms could help India develop its own manufacturing capabilities, Mr Sinha added.

Indian EV makers – including market leader Tata Motors – depend heavily on China for batteries and semiconductors.

India will also need foreign investment to grow its EV sector and address existing problems, such as the lack of charging infrastructure and the high cost of vehicles, said experts.

Its EV sector is still in relative infancy, despite its status as the world’s most populous country and the third-largest auto market.

In 2023, only 2 per cent – or about 900,000 – of all cars sold in India were electric.

The government aims to raise this figure to 30 per cent by 2030 and is pushing for more domestic manufacturing of EVs and their components.

It has also introduced financial incentives for companies that manufacture vehicles in India, as well as subsidies for EV buyers.

Import tariffs for EVs currently range from 70 to 100 per cent depending on their value. 

But in March, the government dropped duties on high-end cars – worth at least US$35,000 – to 15 per cent, a move seen as rolling out the red carpet for American automaker Tesla.

OBSTACLES TO PAST ATTEMPTS

India's market potential has already attracted Chinese-owned EV companies, including market leader BYD and MG Motor, which is making two of its EV models in the country.

However, such attempts by Chinese EV makers to make inroads have stalled.

Last year, BYD shelved plans for a US$1 billion investment with its local joint venture partner, reportedly after its proposal came under scrutiny from New Delhi.

In 2022, China's largest sport utility vehicle manufacturer Great Wall Motors exited India after a two-year-long attempt to expand operations in the country.

The government had imposed restrictions on investments from countries sharing a land border with India. This came amid heightened tensions following deadly border clashes between Indian and Chinese troops in 2020.

Mr Dinesh Arjun, CEO and co-founder of Indian EV startup Raptee, noted: “They had to completely pull back just because of rules here on how you can set up companies. We've had similar issues with MG Motor as well, which is owned by a Chinese conglomerate.

“However, MG has found a way to stay in India by bringing in a local partner,” he added.

Although India will need to strike the right balance with its domestic industry, experts said opening up to Chinese and other foreign brands can help the sector to accelerate.

Source: CNA/lt(dn)
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