Tamil Nadu's EV policy drives ecosystem integration

The Ministry of Road Transport and Highways has set ambitious targets for the adoption of electric vehicles (EVs) in India, with a specific focus on different vehicle segments. By 2030, the ministry aims for 30 percent of newly registered private cars, 40 percent of buses, 70 percent of commercial cars, and a significant 80 percent of two-wheelers and three-wheelers to be electric. As a prominent automotive hub in the country, Tamil Nadu (TN) will play a pivotal role in accelerating this transition.

In September 2019, the Tamil Nadu government introduced a preliminary plan for the integration of electric vehicles (EVs). This initiative, which came just months ahead of the Covid-19 pandemic, positioned Tamil Nadu as one of the pioneering state governments in India to establish a comprehensive strategy for the widespread implementation of EVs. The programme provided a wide range of subsidies, incentives, and tax and duty exemptions. The strategy aimed to attract a total investment of Rs 50,000 crore, which in turn has the potential to generate around 1,50,000 new employment opportunities. Additionally, the policy document outlined various actions that will be implemented to provide support and facilitate the realisation of these objectives.

Nevertheless, despite a three-year period after the implementation of the legislation, the adoption rate of electric mobility remained relatively limited. Based on the data obtained from the Vahan Portal, it is evident that the proportion of electric vehicles registered in the state in 2022 amounted to approximately 3.9 percent, a marginal increase from the two percent recorded in 2021. One primary factor was the policy's emphasis on demand-side incentives that were non-fiscal in nature, such as tax exemption and registration fees, while lacking direct financial subsidies for vehicle purchases.

With the gradual normalisation of the pandemic, government efforts were made to address the low electrification rate by filling the obvious gaps. In 2021, the government initiated a revision of the existing policy to address the shortcomings of the 2019 policy and adopt a more comprehensive approach towards promoting electric vehicle (EV) adoption. On February 14, 2023, TN implemented the revised electric vehicle (EV) policy with a concerted effort to cultivate a comprehensive ecosystem with the aim of transforming Tamil Nadu into a prominent centre for electric vehicles (EVs) not only in India but in the entire Southeast Asian region, including EV manufacturing hubs such as Malaysia and Vietnam.

'There are multiple factors that one needs to take into account, as the government is just one player in the whole transition to the EV space': V Vishnu MD and CEO, Guidance Bureau, Tamil Nadu government

V Vishnu, MD and CEO, Guidance Bureau, Tamil Nadu government, said that his administration adopted a two-pronged approach as part of the revamped EV policy. They intervened on both the supply-side and the demand-side. On the supply side, there are standard incentives that are very customised and tailor-made for the needs of the companies. "More importantly, this time we have introduced demand-side interventions, which I believe are critical to enhancing the fleet absorption rates for EVs, including classifying six cities in the states as EV cities," he said during a panel discussion titled 'Policy Enablers and Regulatory Impact' as part of the India EV Conclave, which was held in Chennai on November 21. The event was organised by the Tamil Nadu government in association with Autocar Professional.

The Guidance Bureau, headed by Vishnu, is a nodal agency under the Department of Industries and Commerce, Tamil Nadu. It is one of the oldest agencies in the country and serves as a single window for investment promotion in the state. Additionally, the EV Cell within the Guidance Bureau plays a crucial role in implementing and monitoring e-mobility projects. It facilitates investments, ensures effective communication and outreach, coordinates with different departments, deploys public charging infrastructure, and guides cities in creating implementation plans.

The top bureaucrat's emphasis on policy continuity and stability in Indian industrial growth, particularly in the context of electric mobility in Tamil Nadu, underscores the significance of a consistent and predictable regulatory environment for attracting investments and fostering steady growth. "Tamil Nadu's growth story is because of the policy stability that has been consistent across the regimes. Never have we gone back on the promises made by the previous governments in terms of policymaking," he asserted.

Developing entire ecosystem and customised packages

The Institute for Transportation and Development Policy (ITDP), a leading global clean transportation think tank, apart from other stakeholders including OEMs, suppliers and planning authorities, played a crucial role in shaping the revamped EV policy. Notably, the updated policy provided an array of subsidies and incentives, surpassing its predecessor. These include turnover-based subsidies, green industry incentives, and quality certification incentives, among others, aimed at bolstering the supply side of the EV market. The new policy strategically targets the electrification of public transport and shared mobility, incentivising commercial vehicles exclusively. Moreover, it introduces retrofitting incentives, encouraging the shift from conventional internal combustion engines (ICE) commercial two- and three-wheelers. Currently, the cost of retrofitting two-wheelers ranges from Rs 25,000 to Rs 65,000, whereas for three-wheelers, it varies from Rs 50,000 to Rs 1,25,000. The proposed incentives will effectively reduce retrofitting costs by 20–25 percent.

Recognising the importance of charging infrastructure in driving electrification, the revised policy rectifies the previous lack of incentives, by offering a comprehensive package of support measures. These incentives aim to reduce the initial costs associated with setting up charging stations by 20-25 percent. Furthermore, the EV Policy extends support to private e-aggregators by providing incentives for establishing fast chargers to the first 50 applicants.

To facilitate the growth of public charging infrastructure, the policy mandates a revision of energy tariffs. Specifically, existing charges will be reduced by 75 percent for the initial two years and by 50 percent for the subsequent two years. Under LT Tariff VII, the energy tariffs for public chargers currently range between Rs 8 and Rs 12 per kilowatt-hour (kWh). The revised rates will bring the charges down to Rs 2-3 per kWh. These reduced energy costs will significantly contribute to lowering the operational expenses of EVs and, consequently, accelerate their adoption.

The new policy introduces a notable aspect of flexibility, departing from the conventional one-size-fits-all approach, to cater to the diverse needs of stakeholders. Termed the "EV special manufacturing package," this framework offers multiple options that prove advantageous for entities operating within the EV manufacturing value chain. Original Equipment Manufacturers (OEMs), component manufacturers, battery manufacturers, and charging infrastructure manufacturers can now make choices aligned with their specific business models and cash flows. In addition to this, the state is diligently working on formulating its own vehicle scrappage policy. This initiative builds upon the existing policy of the central government, which mandates the de-registration of private vehicles older than 20 years from June 1, 2024, in the absence of a fitness certificate. The state's forthcoming policy aims to align with this central policy, further promoting sustainable practices in vehicle usage and disposal.

Offering a perspective on the complexities involved in policymaking, Vishnu went on to explain that the Centre's EV policy is an overarching framework in which the state government does a top-up in terms of supply-side intervention. On the demand side, it is a slightly "medium[1]to long-term story that one needs to play because it has behavioural changes to be induced," he explains. "There are multiple factors that one needs to take into account, as the government is just one player in the whole transition to the EV space. On the manufacturing side, there is more that needs to be done for fleet conversion, but that is more of a mindset attitude, and a whole set of other factors, including social factors also come into play," he continued.

Spreading out the hubs

To Tamil Nadu's credit, the state's EV industry is not confined solely to its capital, Chennai, or a few industrial zones. Rather, it has successfully spread across various geographies, including the booming EV hub of Hosur, along with the southern and central regions of Tamil Nadu. This stands in contrast to some other states, where EV growth is limited to specific clusters. The diversified growth story of Tamil Nadu has positioned it favourably, leading to a surge in investments within the EV space. In the past few years alone, the state has attracted over Rs 40,000 crore in EV investments across OEMs, components, and battery sectors.

Chennai, Coimbatore, Tiruchirappalli, Madurai, Salem, and Tirunelveli have been designated as EV cities in Tamil Nadu, with Smart City Corporation/Municipal Corporation acting as the nodal agency to drive the electrification efforts. These cities collaborate with the state EV cell to implement the policy, establish charging infrastructure, and develop roadmaps to achieve the goal of 100 percent electrification of three-wheelers.

These initiatives have already yielded positive results, with Tamil Nadu accounting for approximately 40 percent of the country's overall EV production. Among these, around 68 percent are EV two-wheelers, leveraging the state's inherent strengths in this direction. "We are poised to leverage the inherent strength of the state in that direction," Vishnu noted.

The state continues to remain a magnet for investments in the burgeoning EV sector, attracting attention from global players. For instance, Vietnamese electric vehicle major VinFast, planning to establish a base in India with an initial investment of USD 200 million, recently explored potential regions in Tamil Nadu, including Manalur, north of Chennai, and Thoothukudi. VinFast's team also reportedly visited Gujarat. Notably, Tamil Nadu, along with rival states Maharashtra and Gujarat, has captured the interest of Tesla, owned by Elon Musk, as they consider setting up an EV manufacturing plant. Tesla's proposed investment is estimated at around USD 2 billion, with plans to ramp up auto parts purchases from India to approximately USD 15 billion. While Tamil Nadu continues to attract new investments in the EV space, the largest commitment thus far has come from Ola, amounting to Rs 10,000 crore. In 2020, the company signed an MoU with the Tamil Nadu government, pledging Rs 2,400 crore in investment. Earlier this year, Ola further solidified its commitment with an additional agreement to invest Rs 7,614 crore, aiming to establish the world's largest electric vehicle hub in the state. Similarly, Korean automotive major Hyundai has earmarked USD 2.4 billion to establish an EV assembly plant near Chennai with an annual production capacity of 75,000 electric cars.

On the electric two-wheeler front, Ather inked an MoU with the Tamil Nadu government for a sprawling 400,000-square-foot manufacturing facility in Hosur. The company commenced operations in January 2021 and recently inaugurated its second facility, expanding its production capacity from 1,20,000 to 4,00,000 units. Ather has committed to investing Rs 650 crore over the next five years to enhance operational efficiency and capacity. Likewise, Chennai-based TVS Motor signed an MoU in 2021, pledging a Rs 1,200 crore investment in future technologies and electric vehicles over the next four years. This investment primarily supports the design, development, and manufacturing of new products and capacity expansion in the EV sector. Additionally, Greaves Electric Mobility inaugurated its largest EV production facility in Ranipet, Tamil Nadu, as part of its Rs 700 crore investment roadmap to capture a larger share of the Indian electric vehicle market.

Leveraging inherent strength of auto and electronics

Tamil Nadu's EV policy capitalises on the two core strengths that the state possesses. Firstly, its well-established automotive industry, which has flourished over the past three decades, and the presence of major Original Equipment Manufacturers (OEMs) such as Hyundai, Nissan, TVS, Mahindra and Daimler, along with their extensive supplier networks, contributes significantly to this strength. Secondly, the state has witnessed substantial growth in its electronics industry over the last decade, with exports valued at an impressive USD 5.37 billion, the highest in the country.

According to internal estimates shared by the state government in February 2023, while the overall electronics industry growth in India stands at around 14 percent, Tamil Nadu has the potential to capture 25-30 percent of the market, which is projected to reach USD 300 billion in the next five years.

Vishnu further highlighted the symbiotic relationship between the automotive and electronics sectors, stating, "Auto plus electronics is a deadly combination, and that is the heart and soul on which the EV ecosystem is built." Electric vehicles heavily rely on various electronic components to ensure efficient functioning. These components play vital roles in controlling and managing electrical energy flow, powering the motor, and supporting other vehicle systems. Key electronic parts utilised in EVs include inverters, on-board chargers, power inverters, controllers, and auxiliary batteries, among others. The convergence of the automotive and electronics industries forms a solid foundation for the growth and success of the EV ecosystem.

Creation of EV Parks and vendor ecosystems

To accommodate the influx of new investments in the electric vehicle (EV) sector, the Tamil Nadu government has strategically planned the development of exclusive EV parks in Krishnagiri and Manallur. The government envisions a Future Mobility Park spanning over 300 acres in Krishnagiri, designed to offer innovative solutions for sustainable transport. Leveraging advanced data science, artificial intelligence, and future engineering, the park will house research centres focused on developing greener and cleaner transport systems. These parks will be located near existing auto hubs and will benefit from excellent connectivity to the state's export and import gateways.

Additionally, the parks will provide shared facilities for prototyping, testing, and training activities. Eligible firms operating within these parks will have access to incentives under various schemes applicable to the Micro, Small, and Medium Enterprises (MSME) sector and large industries, fostering the development of a robust vendor ecosystem. The government also plans to promote logistics parks and free-trade warehouse zones to enhance inventory management. Plug-and-play manufacturing facilities will be established, allowing vendors and OEMs to commence production with minimal capital investment in land and buildings.

Furthermore, Tamil Nadu enjoys a significant advantage with the presence of the Global Automotive Research Centre (GARC), one of India's premier automotive testing institutes. GARC boasts comprehensive research and development facilities and homologation test capabilities, accredited by the National Accreditation Board for Testing and Calibration Laboratories (NABL). Its Electric Vehicle Lab offers FAME II testing, encompassing battery lifecycle and safety assessments, electric motor analysis, EV component durability testing, EV charging infrastructure evaluations, vehicle benchmarking, and design verification. Numerous EV and internal combustion engine (ICE) OEM manufacturers operating in Tamil Nadu and neighbouring states make use of these cutting-edge facilities.

Vishnu further elaborated on the importance of a cluster system, stating, "These are some of the tailor-made solutions. A standalone facility will not work; we need a cluster system. We have been fairly successful in the electronic space, and it is only natural for us to transition it into the EV space.”

R&D and business incubation

As part of its commitment to fostering research and development (R&D) in the electric vehicle (EV) sector, the Tamil Nadu government is actively promoting Centres of Excellence (CoEs) through the Tamil Nadu Industrial Development Corporation's "Centres of Excellence for Emerging Technologies in Manufacturing" scheme. These CoEs, established in collaboration with private players, aim to drive innovation and expertise in EVs. Notable CoEs in the state include Siemens CoE, the Centre for Battery Engineering and Electrical Vehicles at IIT Madras, and the Global Automotive Research Centre, among others. These centres serve as hubs for advanced research and development activities.

Furthermore, the government is taking steps to increase the number of incubation centres dedicated to supporting EV startups. These centres provide essential incubation services such as office space, shared facilities, and mentoring support. Tamil Nadu is already home to several college- and university-based EV incubation centres that are currently operational, nurturing the growth of promising startups in the EV sector.

In the realm of emerging sector seed funding, the Tamil Nadu Infrastructure Fund Management Corporation has established the Tamil Nadu Emerging Sector Seed Fund. This fund aims to invest in startups operating in the sunrise sector, including EVs. Startups seeking support can avail themselves of the necessary handholding services provided by the Government of Tamil Nadu.

Additionally, the state has introduced the Research and Technology Fund under the Tamil Nadu Industrial Policy 2021 with a corpus of Rs 100 crore. This fund is open to proposals for EV R&D projects.

Circularity an important pillar of EV ecosystem

As part of its commitment to developing green manufacturing value chains, the Tamil Nadu government aims to support manufacturing units in the state that utilise renewable energy to meet their energy demands. Under the EV policy, up to 20 percent of the expenses incurred in establishing captive renewable energy power plants, such as windmills and solar farms, will be considered eligible fixed assets if 50 percent or more of the energy produced is used for captive consumption.

The state is host to many companies that have specialised R&D set-ups for EV components and systems.

Vishnu, offering an overview of the policy, highlighted circularity as one of the four pillars of Tamil Nadu's EV policy. This pillar encompasses not only investment considerations but also the development of a holistic ecosystem. The other three pillars focus on Original Equipment Manufacturers (OEMs), component suppliers, batteries, and charging infrastructure. From the perspective of achieving net-zero emissions and addressing environmental concerns, Tamil Nadu boasts an installed capacity of 16-17 GW of green power, the highest in the country. Vishnu emphasised the compelling nature of this advantage when attracting investments. He further noted that circularity naturally aligns with the state's focus, and in the coming years, the government will place increased emphasis on this aspect. Vishnu also highlighted the correlation between the number of electric vehicles on the roads and the need for expanded charging infrastructure. However, he emphasised the importance of sourcing energy from green and sustainable sources to support the transition to electric vehicles.

Skill and reskilling: moving up value chain

The government also acknowledges the need for individuals to unlearn old skills and acquire new ones to keep up with industry demands. According to Vishnu, recognising the importance of addressing the skill demands of industries, the new EV policy has taken several proactive steps to bridge the gap. Collaborating with IIT Madras, the government has established a platform for skilling, which focuses on higher-skilled training. Additionally, vocational training options are available to cater to a broader range of skill requirements. To modernise vocational education and training, the government has transformed 71 government[1]run ITIs into state-of-the-art facilities with support from the Tata Group. Vishnu said the government's commitment to this upward trajectory, stating, "So there's been a conscious effort from the government side also to move up the value chain because the labour arbitrage can only go as far. It cannot take you to the top level, and Tamil Nadu is reaching a stage where, you know, you need to move up the value chain."

Where does Tamil Nadu EV policy stand vis-à-vis others?

An analysis of the EV policies of different states done by ITDP suggests that Tamil Nadu is among the states offering the highest incentives in terms of kWh of battery capacity. However, the number of vehicles incentivised is lower than in other states. These fiscal incentives would provide initial impetus for electrification, but the low vehicle cap could reduce momentum. Secondly, retrofitting incentives for 2-wheelers and 3-wheelers will not only support the conversion of ICE vehicles to EVs but also foster startups working on retrofitting, in the state. Thirdly, all the demand incentives are tied only to commercial vehicles and not to private vehicles, thus strengthening the importance of electrifying public transport and shared mobility. Lastly, the comparison shows that Tamil Nadu provides the highest incentives to charging point operators, but the number of beneficiaries is restricted. This low number could reduce the momentum, the analysis adds.

This feature was first published in Autocar Professional's December 1, 2023 issue.