Also Read: Hyundai has the same fear like Tata Motors & Mahindra
In the documents filed with stock market regulator Sebi for its maiden IPO, Hyundai has opposed a likely tax reduction for hybrid vehicles. Hyundai said, “… with the objective to address climate issues, govt of India proposes to reduce GST on hybrid passenger vehicles to 5% and 12% on flex engines, while the GST on diesel and petrol vehicles is proposed to remain at 28%… In the event such amendment becomes effective, it could have an adverse impact on the sales volumes of our diesel and petrol vehicles which could affect our margins, business, and results of operations.”
Hyundai has highlighted a deepening divide among India’s automakers over the hybrid tax incentive. While Tata Motors, Mahindra & Mahindra and Hyundai raise objections to any duty relaxations for hybrids, Maruti Suzuki, Toyota and Honda press for this incentive.
ET Now reported in May that the government may not discuss tax concessions for hybrid cars in the next GST Council meeting. Earlier, Transport Minister Nitin Gadkari had requested the Finance Ministry to reduce the GST on hybrid cars to 12%. Gadkari mentioned that the proposal to decrease GST on hybrid vehicles to 5% and to 12% for flex engines has been forwarded to the Finance Ministry for consideration.
Currently, electric vehicles (EVs) in India are taxed at only 5%, whereas hybrids are taxed as high as 43%, just below the 48% tax imposed on petrol cars. Gadkari had earlier argued that EVs are currently taxed at five per cent while the tax on hybrid cars is as much as 48 per cent, and hence it needs to be rationalized to promote climate-friendly vehicles to address climate change and decrease air pollution.
Why tax cut on hybrids is being opposed
The main problem with a tax cut in hybrid vehicles is the possibility of potential buyers of electric vehicles (EVs) choosing hybrids instead, thus impeding the growth of EVs. In India, EVs account for just 2 per cent of the overall passenger vehicle sales. In China, EVs have a large share of nearly 38 per cent. A tax cut on hybrids will also bring down the sales of petrol and diesel vehicles, thus impacting companies that produce few or none of hybrid vehicles but are focused on transitioning straightaway to EVs.India’s top electric car maker Tata Motors urged the government not to cut taxes on hybrid cars as they are more polluting than pure electrics, countering calls from Toyota for lower levies, Reuters had reported in January.
The company has met officials and written to the trade department, saying the country faces an urban air quality crisis with health implications, and hybrids should not be incentivised as they are already taxed lower than gasoline cars, ET had reported in January.
Tata had met officials and written to India’s trade department, saying the country faces an urban air quality crisis with health implications, and hybrids should not be incentivised as they are already taxed lower than gasoline cars, as per the Reuters report. “Any further incentivisation of hybrids will be a detriment to the climate goals and nation’s economy,” Tata wrote in a confidential letter to the department.
Tata said in a statement that communicating with the government was part of its regular business conduct and it believes EVs “are the only practical solution to fight India’s epidemic of urban air pollution, as well as reducing oil imports”.
Tata Motors and Mahindra have been staunch opposers to any special benefit for hybrids. The two emphasise that only “zero emission vehicles” should get benefits and not those that offer only “fuel efficiency improvement technologies”.
“So, if it’s not plugged into electricity, I don’t think it qualifies for being an electric or should be compared with an EV technology. The source of energy for a hybrid comes from two sources – regenerative braking to a small fraction, and the rest from a gasoline engine. So, effectively the source of energy for hybrids is a gasoline engine. Comparing a hybrid with an EV is very motivated as people feel that such a comparison can make hybrids qualify for policies which are supportive of electrification,” Shailesh Chandra, MD of Tata Motors’ Passenger Vehicles and Electric Mobility Divisions, had told TOI earlier.
The demand for a tax sop for hybrids
Auto manufacturers such as Toyota, and Maruti Suzuki which focus mainly on hybrid vehicles that run on both petrol and electric motors, are asking for a tax cut on hybrids. Due to the charging infrastructure and electric ecosystem coming up in India at a very slow pace, hybrids are seen as an effective transitional technology. Japanese carmakers led by Maruti Suzuki believe that strong hybrids — which are not dependent on the charging infrastructure — are a good solution till the country is fully prepared to embrace EVs.
Last year, Toyota had written to the government to reduce taxes on hybrid vehicles, arguing that the current tax concession in comparison to petrol cars isn’t sufficient. As per the company, hybrid vehicles, despite being far less polluting in comparison to conventional ICE, do not get the apt policy treatment.In a letter to the government’s think tank, Niti Aayog, Toyota’s country head in India, Vikram Gulati, said that the tax differential over petrol cars should be as much as 11 percentage points for hybrids and 14 points for flex-hybrids. Gulati urged the government to reduce the taxes by 21 percent for hybrid cars.
At present, the government levies 48 percent tax on petrol cars and 43 percent on hybrid cars. As per Toyota’s request, if accepted, it would come down to 37 percent on hybrids and 34 percent on flex-hybrids, thus potentially making them cheaper for the end-consumers.
Hybrid vehicles combine a petrol engine with an electric motor to reduce fuel consumption and emissions. They are typically more expensive than petrol cars, but they are also cheaper than EVs.
Strong hybrid vehicles should replace models powered by fossil fuels and not be seen as an alternative to pure electric vehicles (EVs), a senior executive at Maruti Suzuki India has said. Even if India’s auto industry pushes for pure EVs, their share in sales will not reach 80% or 100% of the automobile market even in the next 10-15 years, Rahul Bharti, executive officer – corporate affairs at Maruti Suzuki, said at the automaker’s monthly media call early this month.
Buyers taking to hybrids
Sales of hybrid cars and SUVs have grown at a faster pace, narrowing the market-share gap with EVs, ET has reported recently. Hybrid electric vehicles are expected to see a 38% growth at 22,389 units, capturing a market share of 2.1% compared to EVs, which will see a slight decline of 0.2% to 27,242 units. Plug-in hybrids will grow by 13%, from a small base to 35 units, according to fiscal Q1 estimates by Jato Dynamics.
Globally too, sales of hybrids have been accelerating amid the slowdown in EVs. In the US, growth has outpaced EVs over the past several months. As a result, global hybrid sales could exceed the outlook by 1-2 million vehicles, according to a recent Goldman Sachs report. Despite EVs’ critical role in long-term climate goals, hybrids present an immediate, cost-effective solution. The combination of fuel efficiency, lower operating costs, and reduced emissions make hybrids an attractive option for consumers, say experts.
Hybrid vehicles are a practical medium-term solution for India’s decarbonisation drive as the country moves towards eventual electrification, according to a report by HSBC Global Research. Under the current circumstances, the total carbon emissions (well to wheel) from hybrid cars is lesser than that of electric vehicles (EVs) and it may take 7-10 years for EV and hybrid emissions to converge.
Hybrids run on electricity generated by burning fossil fuels. This situation will not change as the industry moves up the hybrid technology tree. EVs, too, run on electricity produced in India principally from fossil fuels. However, transition to renewables makes EVs progressively less polluting. At some point in the future, EVs will be far cleaner than hybrids.
