Pay lower taxes for hybrid cars in India?

by Amit Vijay M 20 Sep 2022


The Centre is working to create a fair structure that aligns taxation rates to the emission norms and a team of experts is currently examining both global and domestic data and looking into demands from OEMs. These remarks were made by Arun Goel, Secretary, Department of Heavy Industry at a recent SIAM panel discussion moderated by Autocar India’s Editor Hormazd Sorabjee.

The government is fuel agnostic and the same benefits will be rolled out to hydrogen fuel cells, ethanol-based technology as much as hybrids — cars that use both electric and petrol, Goel said 

The Centre currently imposes a 5 percent tax rate on EVs. Small hybrids currently attract a 28 percent tax while the large hybrid siblings attract a 43 percent tax. Honda’s recent e:HEV attracts this while cars like Baleno hybrid attract the former tax. For the internal combustion engine (ICE) vehicles, the tax rate is 29 percent for small vehicles and 45 percent for large vehicles.

Boost for hybrids
Recent launches have given hybrids a boost. The Toyota HyRyder has a six-month waiting period while its Maruti badge-engineered, Grand Vitara, has 53,000 bookings with 43 percent of them for strong-hybrid trims

“If hybrids are running 50 percent or even more on electric power, then there has to be some sort of support or incentives to promote them because they are environment friendly,”  says Shashank Srivastava, Executive Director, Maruti Suzuki. Vikram Kirloskar, Vice-Chairman, Toyota Kirloskar Motor, says, “that when we lower the price points, we hope to increase our numbers as well as our market share."

Toyota's revamped Bidadi plant can produce nearly 3.10 lakh vehicles annually. The Grand Vitara has strong hybrids and will be sharing the site with Toyota which will give both the economies of scale to ramp up production to meet demand.

Harshwardhan Sharma,  Head, Automotive Retail Consulting Practice at Nomura, says that the harmonisation of taxes across all alternate powertrains will be a welcome step as it incentivises consumers to make more green choices. Citing an example, he said,” A case in point is in the US where all-electric and plug-in hybrid cars purchased in or after 2010 are eligible for a federal income tax credit of up to $7,500. Additionally, state and/or local incentives may also apply. The need for the Centre is to see the benefit that hybrids bring to the table and rationalize taxation in line with global norms," he said.

In the last fiscal, 115,032 hybrid cars were sold in India according to Vahan data, which is around 4.2 percent of the total sales of 2.7 million passenger vehicles sold, including mild hybrids 

Last year, only 831 strong hybrids were sold, including the Toyota Camry and a handful of Vellfires. "We may see up to eight to 10 percent penetration, in the next three years. With affordable strong hybrids coming in, this market will see a strong revival as consumers care for the planet and want a charging anxiety free ride," emphasized Harsh of Nomura. Hybrids, are perfect for consumers who want a lower carbon footprint, and proven tech, and yet want to continue to experience the thrill of driving an ICE, he said. It may be recalled that among the first hybrids in India were the Toyota Prius, and the Honda Civic, both of which are now not available.

Toyota's next hybrid for India will be a multi-purpose vehicle, or people-carrier, expected later this year or early in 2023, says a company official. The company plans to strengthen its supply ecosystem and is stepping up the local manufacturing of its E-Drives, which ensures seamless switching between the engine and electric motor, for the Toyota Hybrid system. These drives are being made with parts affiliate Aisin Seiki Company.

The JV has identified a capacity of 135,000 units that can be increased to 400,000 E-Drives by adding two more assembly lines at its Bidadi Plant, added sources.

The automaker's strategy with the low-cost manufacturing of Maruti is to cut the cost of full hybrid powertrains by making them in India. By combining the hybrids with a low-cost chassis and some upper body parts from Suzuki, Toyota is looking to significantly reduce the cost of hybrids.

The road ahead
Maruti Suzuki India chairman R C Bhargava has been very radical about his views stating that the Indian EV passenger car-ride in the domestic market is an arduous journey. Having the price parity between conventional fuel cars and EVs will happen in the long haul. This is due to a complicated mix of getting the right battery technology, charging infrastructure, and the price right to ensure the customer makes a smooth transition  

“In India, there is scope for all kinds of fuels. CNG cars are growing very fast. India will first follow the path of CNG, secondly hybrids and then electric,” Bhargava said.

Srivastava says the increasing shift towards strong hybrids will also lower the demand for diesel SUVs from the current 51 percent.

In passenger cars and utility vehicles, petrol accounted for 68 percent of sales, diesel 19 percent, and CNG 8 percent, in fiscal 2022. Currently, hybrids are priced 30 percent higher on-road price compared with their ICE counterparts, but this gap is reducing with the price of Toyota Hyrdyer. 1.5 petrol strong-hybrid e-CVT from Rs 18.99 lakh. 

CRISIL Research suggests that hybrid vehicles can compete for market share with diesel vehicles and not against petrol or CNG variants based on cost economics. The current price differential between a hybrid and petrol variant is ~30 percent while that between a hybrid and diesel is 15 percent. For a personal petrol vehicle buyer who on average drives 10,000 km annually, the breakeven for a hybrid would only be over 10 years based on current ARAI mileage figures, says Pushan Sharma, director of CRISIL research.

Sharma is of the view that with the upcoming emission norms the price differential between hybrid and diesel should narrow down, due to the higher cost needed to upgrade diesel to meet these norms. 

He further says the introduction of hybrid electric vehicles (HEVs) is beneficial to OEMs keeping CAFÉ and BSVI norms into consideration. Although it will increase the fuel efficiency by close to 50 percent than that of petrol, the high upfront cost of the vehicle will make cost economics unfavourable to consumers.

"However, unlike the common conception of HEV as an intermediate step between EV and ICE, the battery capacity of an HEV is less than 10 percent of the capacity of a similarly sized EV. Hence the reduction in battery prices over the next few years will not fully reflect in the price of an HEV like it would reflect in the case of an EV." He further explains. Even if battery prices are coming down, automakers are constantly looking to increase their prices looking to the strong demand. But not all of them are able to buck the trend.  

Honda Cars India’s recent decision to up the price of its City HEV by Rs 39,100 to Rs 19.92 lakh hasn't gone very well with its customers. Its August 2022 numbers took a 24 percent drop in total passenger car sales and a 30.49 percent year-on-year decline in domestic sales. Its CEO has been quoted as saying, "We are in the process of updating our product portfolio and from next year you will see a bevy of products coming to the Indian market, especially our hybrid SUVs that will bring us back into the reckoning" 

Our sister publication Autocar India had earlier reported that Honda will soon stop production of three of its aging models – the Jazz, fourth-gen City, and WR-V – in India. This will leave the Japanese carmaker with just two models in its India portfolio – the fifth-gen City and Amaze. However, a critical third model – a compact SUV (codename: 3US) – is set to join the range in 2023. This offering is also expected to get a strong hybrid motor from the Honda City HEV. The company also recently teased a new generation CR-V in a series of photos revealing part of the crossover’s face and rear profile. The images also carry a ‘hybrid’ badging at the rear of the vehicle revealing that the new CR-V will be offered with a strong hybrid powertrain.

Globally, Honda is making a big push into hybrids, with the company set to launch electrified versions of the new Accord, Civic, and CR-V in the next couple of years. Honda will slowly transition from gas-only cars to hybrids and then to fully electric vehicles says Dave Gardner, the company's executive vice president of business and sales, Honda Cars.

The CR-V Hybrid will go on sale before the end of the year, with the new Accord and Insight-replacing Civic models expected to arrive in 2023. Honda is projecting these hybrids to make up 50 percent of the model's overall sales.

Kunal Behl, vice president, marketing and sales, of Honda Cars India is of the view that India requires a rapid shift to a greener technology that can be adopted by the masses.

Honda, Suzuki, and Toyota’s preference for hybrid technologies over battery electric vehicles (BEVs) are seen as an indication that Japanese automakers believe that the latter is too expensive to own for mainstream car buyers in emerging markets like India. Both Suzuki and Toyota will share the hybrid technology backed by local procurement. Hybrid vehicles make up 24 percent of Suzuki’s sales worldwide, and the company is vying to replicate the success story in India as well 

The government has spent around Rs 1,400 crores so far out of the Rs 10,000 crores allocated under the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II) scheme. The Union Budget for FY23 gave a major emphasis on the sector and increased the fund allocation for the FAME scheme over three-fold from Rs 800 crores last year to Rs 3,000 crore in the current year. 

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