Karnataka proposes incentives for hybrids and EVs

The southern state of Karnataka has drafted a comprehensive clean mobility policy that includes substantial tax breaks for hybrid vehicles and lucrative incentives for manufacturers in the electric vehicle (EV) sector. This initiative, detailed in a draft government document positions Karnataka to become a pivotal player in India's transition towards cleaner transportation alternatives.

The proposed policy, which aims to boost "clean mobility vehicle adoption," encompasses a range of vehicles including EVs, certain hybrids, and hydrogen-powered vehicles. One of the most notable aspects of the plan is the proposed elimination of road tax and registration charges for hybrid cars priced under 2.5 million rupees (approximately USD 30,000). This marks a dramatic shift from the current tax regime, where these vehicles face levies ranging from 13% to 18%.

Karnataka, already ranking third in India for EV sales, is set to join the northern state of Uttar Pradesh in offering tax breaks for hybrid vehicles. This move is particularly significant for automakers like Toyota, which has been lobbying the central government for such concessions. The Japanese automaker's stance, however, contrasts with that of domestic rivals such as Tata Motors and Mahindra & Mahindra, who argue that incentivizing hybrids could potentially undermine India's ambitious EV adoption goals.

The state's proposed incentives extend beyond tax cuts for hybrid vehicles. The draft policy outlines plans to offer substantial financial incentives to companies investing in the clean mobility sector. Manufacturers of electric vehicles or their components could receive incentives of up to 25% on capital investments, with the exact percentage varying based on the size of the investment and the number of jobs created.

These incentives are designed to apply not only to EV manufacturers but also to companies producing battery components and EV charging infrastructure. The draft suggests that financial incentives ranging from 15% to 25% of investments in fixed assets, such as land and machinery, will be offered for both new factories and expansions of existing facilities.

While the Karnataka government has previously announced its intention to attract up to USD 6 billion in new investments through its clean mobility policy, this draft provides the first detailed glimpse into the specific measures being considered to achieve this ambitious target.

The timing of Karnataka's proposed policy is significant, coming amidst a nationwide push towards electric mobility. The Indian government, under Prime Minister Narendra Modi, has set an ambitious target for 30% of new car sales to be fully electric by 2030. However, current adoption rates suggest a challenging road ahead. In the 2023/24 financial year, out of 4.2 million car sales in India, fewer than 100,000 units each were hybrids and EVs.

Karnataka's approach, which includes incentives for both hybrid and fully electric vehicles, represents a nuanced strategy in the transition towards cleaner transportation. By offering support for hybrid technology, the state appears to be acknowledging the potential of these vehicles as a bridging technology, potentially easing the transition for both consumers and manufacturers towards full electrification.

However, this strategy is not without controversy. The inclusion of hybrid vehicles in the incentive structure has sparked debate within India's automotive industry. While companies like Toyota welcome the move, arguing that hybrids offer a practical stepping stone towards full electrification, others in the industry fear it could slow down the adoption of fully electric vehicles.

The policy also highlights the growing competition among Indian states to attract investments in the burgeoning EV sector. As states vie to position themselves as hubs for clean mobility, the landscape of incentives and tax breaks is becoming increasingly complex and competitive.

For potential investors and manufacturers in the clean mobility sector, Karnataka's proposed policy presents significant opportunities. The combination of tax breaks for end consumers and financial incentives for manufacturers could create a favourable ecosystem for the development and adoption of cleaner vehicle technologies.

As of now, the state government has not specified a timeline for finalising and implementing this policy. The transport department of Karnataka has yet to respond to requests for comment on the draft, leaving room for potential modifications before the policy is officially unveiled.

The outcome of this policy, once finalised and implemented, could have far-reaching implications not just for Karnataka but for India's broader automotive industry and its clean energy transition goals. It may set a precedent for other states and potentially influence national policy on clean mobility incentives.