Auto stocks decline amid potential EV import rules favoring Tesla
What's the story
Shares of leading Indian automakers Tata Motors, Mahindra and Mahindra (M&M), and Hyundai Motor India plummeted on February 21.
The fall was sparked by speculation that the government may ease import norms for electric vehicles (EVs).
This possible policy change could open the gates for foreign players like Tesla to enter the Indian market and intensify competition.
Market impact
M&M records largest single-day fall in 7 months
M&M's shares saw their worst single-day fall in almost seven months, falling 6% to ₹2,653
Tata Motors' shares also fell, trading 2% down at ₹676. Hyundai Motor India's shares also followed the trend, falling 2.5% to ₹1,875.
These market shifts highlight the rumored policy changes' potential impact on India's auto industry.
Tesla's strategy
Tesla's India entry could be facilitated by new policy
The potential policy changes are especially pertinent as Tesla has already started working toward selling cars in India.
Elon Musk's company, according to Moneycontrol, is likely to enter the Indian market through direct imports, instead of committing to local manufacturing anytime soon.
To ease this entry, the government is reportedly considering reducing import duties for EVs and relaxing import norms more broadly.
Policy shift
Government's readiness to reduce import duty on EVs
The government's willingness to cut import duty on EVs shows it is willing to change course to attract foreign players and make India a part of the global supply chain.
However, Geojit Financial has indicated that Tesla may not be able to match M&M in pricing, distribution, and services.
This analysis comes as a relief for domestic automakers in the wake of policy change uncertainty.
Duty changes
Changes in import duty structure for EVs
For fully built EVs priced above $40,000, the import duty is 70% plus a 40% Agriculture Infrastructure and Development Cess.
The 10% Social Welfare Surcharge exemption does not change the total duty, which is 110% for EVs above $40,000.
For EVs costing less than $40,000, the import duty remains unchanged at 70%.
The import tax may be reduced from 110% to 15% but Tesla may not benefit right away as companies must invest ₹4,150 crore and meet other criteria.