India's largest carmaker Maruti Suzuki has said that the government should look at incentivising hybrid technology in India and tax them at 28 per cent under Goods and Services Tax (GST), the same rate as small cars.
Only last month, Maruti had deferred the launch of the electric Wagon R for individual customers by at least one year to 2022, citing lack of charging infrastructure.
During the Auto Expo 2018, the company had said that the launch would happen in 2020. It has imported a batch of 50 Wagon R EVs from Japan which are being tested as a pilot project across the country.
"If hybrids contribute to some saving of energy then I think the technology should be awarded. Of course not as much as EVs which is zero emissions but hybrids do reduce emissions by 30-40 per cent by increasing the fuel economy," says Kenichi Ayukawa, managing director and CEO, Maruti Suzuki India Ltd.
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"So it should get some tax incentive. Right now the cess (15 per cent for large hybrid vehicles) is high for bigger cars. If these cars give the same fuel economy as a small car under the hybrid system, then they should be taxed the same as small cars. That is a good enough incentive for us to then go to the customer and tell him the benefit of a high fuel economy. I think then, with the reduction of price due to lower GST, he may be willing to pay extra for higher fuel economy in the hybrid system over petrol or a diesel version of today," he added.
Large hybrid cars, classified in India as those with a length of over 4 metres, do not get any incentive from the government right now but Maruti along with its partner Toyota has been lobbying behind the scenes in favour of hybrids as a suitable intermediate technology before the country is ready for EVs.
The market leader says there is no demand for electric cars from consumers yet and worldwide it is fueled artificially through incentives.
"The basic demand has to come from customers and at this moment, there is no such demand (for EVs). In China (the biggest market for electric cars in the world), the demand was artificial due to the support. They reduced that and the sales dropped," Ayukawa says.
"It takes time for technology to mature as also for infrastructure to be developed. In future, it may come after 5-10 years. But it needs time. Battery technology is still developing. There are raw material limitations and safety concerns also need to be addressed," he further states.
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In China, which accounts for half of the global electric vehicle sales, the government cut subsidies on EVs of as much as 50,000 yuan ($7165) by half in June this year. It resulted in a fall in EV sales in the country for the first time ever, 4.7 per cent in July.
Since then, it has only gotten worse with a 16 per cent decline in August, 27 per cent in September, 45.6 per cent in October and 43.7 per cent in November.
"It is very difficult to focus only on one technology. We need many alternate technologies- EVs, hybrids, CNG, biofuels," Ayukawa adds. "It depends on the cost and the convenience of the consumer. Focusing only on one technology is very dangerous," he further says.
At the annual convention for automakers organized by industry body Society of Indian Automobile Manufacturers (SIAM) in September 2019, the minister for road transport and highways Nitin Gadkari had agreed that hybrid cars too should enjoy lower taxation.
"We have already reduced the GST on electric vehicles and now I am trying to make sure that the hybrid cars too get a similar reduction," Gadkari had said. "I am following up with the Finance Ministry, so should the manufacturers, so that it too can be covered under the same bracket," he clarified.
Prior to GST, hybrid vehicles were taxed at 30.3 per cent (12.5 per cent excise duty, 12.5 per cent value-added tax, 2 per cent central sales tax and 1 per cent national calamity contingent duty).
Under GST, it attracts 28 per cent tax and 15 per cent cess - like big petrol and diesel luxury cars. In July this year, the GST Council reduced the tax rate on electric vehicles (EVs) to 5 per cent from 12 per cent, increasing the gulf in taxation between hybrid and pure electric vehicles in the country.
Maruti Chairman R C Bhargava has also highlighted the lack of lithium-ion battery manufacturing in India as one of the biggest stumbling blocks in the EV story in India.
"The biggest cost in an EV is the battery. Where is the battery manufacturing in India?" he said last month. "The facility that we are setting up with Toshiba in Gujarat is for hybrid batteries and not for fully electric vehicles," he states.
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The clamour for incentives for hybrids has, however, divided the industry down the middle. While Japanese manufacturers such as Maruti Suzuki, Toyota Motor Corporation and Honda are rooting for hybrids homegrown companies such as Tata Motors and Mahindra and Mahindra are not as excited with that prospect.
Tata and Mahindra are the two companies eager to get the first-mover advantage on EVs and have an electric car each in the market - eVerito and eTigor, respectively. Having placed all their bets on EVs, putting hybrids back in the mix may scuttle their strategy.
"If somebody says that going for the electric powertrain is a two-step process via hybrids, then that is not right," says Pawan Goenka, managing director, Mahindra and Mahindra in September. "I am not critical or supportive of this statement. I am neutral to it," he adds.
Tata Motors CEO and MD Guenter Butschek has been even more caustic.
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"As an industry, we need to have one voice on technology play. We need to invest in new technology. After BS-VI (emission norms) we have to prepare for CAFE norms. Now government is rethinking on hybrids. How many of these disruptions can be absorbed when volumes are low?" he says.
"There will be a huge degree of confusion in the larger industry, including the private sector which is finalizing investments. There are so many companies ready to set-up charging stations and even battery manufacturing factories. Now with hybrids, there is no need for those investments," he had said in March.