Although India has primarily concentrated on exemptions for electric vehicles, this initiative could position Karnataka, home to Bengaluru’s tech hub, as the second state after Uttar Pradesh to offer tax breaks for hybrid cars, a change for which Toyota has advocated New Delhi.
Karnataka, a southern state in India, plans to reduce levies and provide financial incentives to companies in the clean mobility sector, including a significant tax reduction for hybrid cars, which will benefit Toyota, according to a draft of a state government document.
Karnataka, which records India’s third-highest electric vehicle (EV) sales, plans to reduce road tax and registration fees for hybrid cars priced under $30,000, currently set between 13 percent and 18 percent, according to a draft reviewed by Reuters.
The state intends to promote the adoption of “clean mobility vehicles,” including EVs, specific hybrids, and hydrogen-powered vehicles, although the draft does not specify a timeline for finalizing and announcing the policy.
Implementation Strategy
State road and registration taxes are in addition to the federal sales tax of 5 percent for electric vehicles (EVs) and can reach up to 43 percent for hybrids.
Karnataka plans to offer incentives up to 25 percent on capital investments for EV manufacturers and their components, with specific amounts depending on investment size and job creation. Financial incentives of 15 percent to 25 percent will apply to fixed assets like land and machinery for new or expanded factories, including battery and EV charging equipment.
Though details remain scarce, the state aims to attract up to $6 billion in investments through its clean mobility policy. Indian states are competing for the EV industry, in line with Prime Minister Modi’s push for greater adoption to reduce pollution and fuel imports.
In the financial year 2023-24, India saw car sales of 4.2 million, with under 1,00,000 units of hybrids and EVs. By 2030, the goal is for fully electric vehicles to constitute 30 percent of new car sales.
Beneficial Companies
The initiative to provide incentives for hybrid vehicles could benefit companies like Tata Motors and Mahindra & Mahindra, which have advocated for a stronger focus on electric vehicles (EVs).
These incentives might challenge India’s efforts to accelerate EV adoption by potentially diverting attention and resources towards hybrids. However, these companies could leverage the hybrid market as a transitional phase, allowing them to enhance their overall technology and infrastructure while still supporting the long-term goal of increasing EV adoption in the country.
Impact on Share Price
Following the announcement, the share prices of several major automobile and EV companies experienced increases. Tata Motors shares rose by 0.3 percent to Rs.995.25, Samvardhana Motherson International Ltd gained 0.7 percent to reach Rs.214.27, while Ashok Leyland Ltd advanced by 0.2 percent to Rs.241.55, among others.
Written by – Siddesh S Raskar
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