Opinion: Is the Electric Revolution Really Underway, or Has the Focus Shifted to Hybrid Vehicles in India?

As expected, the Government is now mulling a cut in taxes on hybrid vehicles – a little late in the day. The Minister for Road Transport & Highways has requested the Finance Ministry to consider reducing GST rates on hybrid vehicles to 5%. Currently, hybrids are clubbed with ICE and LPG/CNG that attract 28% GST and – depending on the engine displacement and ground clearance – an additional cess that can go up to 22%. Electric vehicles, on the other hand, attract a GST rate of 5% flat – no cess. Given the complex tax structure of GST overall, a relook at the rates to simplify them when a new government comes to power was due anyway.

When the GST regime was being introduced in 2018-19, OEMs lobbied the Government to equate hybrids with EVs, but to no avail. Now with the success of hybrid models in India, and with customers praising their fuel efficiency, the Government seems to be coming around. Why didn’t they consider it then? Well, for one, it seems to me that the Government did not want to fall for the ‘micro-hybrid’ technology pitch once again (essentially stop-start tech and brake energy recuperation being considered as proper hybrids). More than that, the Government felt that hybrids were essentially extending the life of the IC engine and not allowing it to make a clean break from it.

When nothing has changed, why now? Perhaps the Government has realised that EV adoption will not be as rapid for passenger vehicles as the way they had initially envisaged. The critical mass that is required for charging stations, affordable EVs and clean energy to all come together to make a step-change in the way Indians drive is still some time away. Then there is heavy dependence on China for batteries and battery cells, technology and even raw material processing. Also, the prospect of fuel savings and the potential of hybrids running on blended fuels has also perked up Government interest, enough to forgo the potential income for the Exchequer from the higher taxes on hybrids.

So what if the Government indeed reduces GST on hybrid vehicles, which seems pretty likely? Well, I feel it will affect EV adoption; OEMs may delay the introduction of ground-up all-electric vehicles while charging infra may also take its time to reach the mainstream. Customers, who after shedding their initial anxieties, decide to buy an electric as their next car, may just kick the can down the road if a hybrid model is available at a similar price. Despite FAME, PLI and State Government incentives, EVs are still expensive. Electric car sales in FY24 were only at 90,000 units. While the numbers by themselves may be small, the rate of growth has been stupendous: nearly 90% over FY23. Will a GST cut on hybrids affect this rapid rate of growth then? If there is not much difference between the prices of an electric and a comparable hybrid, then the Government’s goal of 30% EV penetration by 2030 may just not happen.

So what’s the solution? In the first place – though it is not a solution – I wish the Government wouldn’t make ad hoc decisions. They did that with electric two-wheelers, and now they’re attempting mid-journey corrections with passenger vehicles too. All OEMs seek stability, whether a policy works for their best interest or not. Secondly, other markets should also be studied. Latest reports from Europe show that driving habits have made PHEVs offer less emission-related benefits than previously thought. PHEVs were portrayed as an interim solution for full electrification in Europe, but recent research has revealed that people were using electric mode remarkably less than expected. Okay, we don’t have PHEVs in India, but what if we Indians do the same?

When the Government introduced the new ‘Tesla’ EV policy just before the elections, they specified very clear conditions. Similarly, if the Government is determined to cut taxes on hybrid cars, it should come with specific conditions that will induce OEMs to bring in all-electric vehicles rapidly, if that were possible. Perhaps the tax cut should come with an expiry date at the very least.

However, I have another thought. I read someplace that if electric cars attain a 5% overall market share, then the revolution is truly underway. At present, electric cars account for 2% of all passenger cars sold but are at a vulnerable stage. What if the tax cut is introduced after the EV market share reaches 5% – perhaps in less than two years? The market can decide then.