How taxation on premium ICE cars could drive EV adoption in India
Aditya Govindarajan is a product manager, eV consultant and entrepreneur who has a passion for thinking differently. In this 2-article series, he presents his analysis on why premium electric vehicles (eVs) will better spark electrification in India.
This first article demonstrates how battery prices can come crashing if car manufacturers (OEMs) take better advantage of the substantially lower Goods and Services Tax (GST) on premium eVs. By driving up the demand for Li-Ion cells, India could justify domestic cell production. This eventually drives down the battery prices($/kWhr) for budget cars to go electric. Following this strategy will hasten the end of the internal combustion engine (ICE) age.
Why does India desperately need domestic Gigafactories?
India given her crude oil import bills and rising pollution is in dire need of electrification of her consumer and cab fleets. Its population is willing to adopt eVs if three barriers are overcome: higher initial cost (capex), range anxiety and charging infrastructure.

The latter two issues can be alleviated with larger capacity (> 60 kWhr) batteries, but that would hurt the former by bumping up capex. India today, despite its growing eV base, doesn’t yet have the negotiating power to source lithium-ion battery cells at global prices. To justify domestic battery factories, India needs an annual demand of 2-3 GigaWattHours from four-wheelers. That demand would come sooner if premium cars (>₹2,000,000) went electric before the budget cars.
Income disparity in India is huge. Rather than levying a tax on the rich who can afford premium eVs in India, my argument is to use the purchasing power of the affluent to bring scale to the eV market and bring down the battery costs so that, eventually, mass-market eVs are affordable for everyone.
This article will demonstrate how a shift in strategy will generate sufficient cell demand to justify GigaWattHour scale battery production in India while overcoming the 3 barriers to eV adoption.
Tata Motors’ budget eVs are still 70% pricier than their fossil fuel counterparts
The single most expensive component of an eV is the battery, today that makes up 30-45% of the car’s price. Large lithium-ion battery packs for long-range cars were frightfully expensive. This forced Tesla to design and launch the more expensive Roadster and Model S as these low volume higher priced cars would drive adoption and technology development that would eventually bring down the price for the mass market Model 3 & Y. The learnings from the Model S brought about the refinement and production efficiency needed for the Model 3. This playbook would work for India too.
Indian electric car manufacturers have been picking smaller battery packs (< 30kWhr), resulting in greater range anxiety. The logical conclusion as to why the Mahindra e2O and now the Tata Nexon/Tigor/Tiago eV kept their battery sizes small was to lower costs and reduce the amount of overnight charging time. The scale required to source batteries at $100-130/kWhr is unlikely to come when the Tata Nexon eV is 70% pricier than its petrol variant, which doesn’t have issues like limited range and under-developed charging infrastructure. Indian car makers should target the electric variants of pricier cars with bigger batteries and greater range to spur eV adoption in India.
India needs a certain scale of eV adoption to be able to reap the benefits of falling global battery prices.

MG motors with their 50kWhr battery packs is less of a compromise with a real world 350km range than the Tata Nexon/Tigor/Tiago eV. MG’s ZS eV is more capable of being the only car in the house with its faster charging speeds at 7.2kW AC/ 50kW DC. Unfortunately, the MG ZSeV is still 58% pricier on average than the MG Astor, its petrol automatic counterpart. The breakeven point, where electric editions of cars cost about the same as their petrol/diesel counterparts, will happen in much bigger cars with bigger battery packs. The Tata Harrier and Mahindra XUV 700 are ideal electric candidates, as we will illustrate later.
Heavy taxation on fossil fuel cars is the opportunity to exploit
While the state giving passengers incentives like cash rebates, lower tolls and zero road tax registration to incentivize eVs is nice; there exists a far more powerful tool in the GST tax regime in India that can be leveraged to make premium eVs more economically attractive than their ICE counterparts.

Most fossil fuel cars in India attract the highest tax bracket of 28%. Based on the length of the car, engine size, or segment, you get slapped with a cess (additional GST tax) that can be as high as 22% on top of the GST, bringing taxes baked into the ex-showroom price to be as high as 48% (= 28% + 20%) for premium sedans or 50% (= 28% + 22%) for SUVs. At the same time, GST on any eV is priced at 5% without any cess. While the resultant GST delta helps subsidize the expensive battery, the eVs, such as the Nexon eV, are still way more expensive than their petrol counterparts.

The GST delta between eVs and ICE cars is as high as 43-45% for premium eVs, that is 43- 45% on a higher basic price. This GST delta, along with the road tax, can be spent on a bigger battery with more powerful motors.
Incentives/rebates given by state governments for those purchasing eVs could be as high as ₹100k in Maharashtra or ₹150k in Delhi. In the calculations below, I have left out how much cheaper the eV becomes after this rebate; if accounted it would further reduce the time to break even on the total cost of ownership (TCO) between the eV and an ICE car.
When we say India needs premium eVs, I am not referring to the German luxury brands but rather the ₹2,000,000 – ₹3,500,000 priced models with ample creature comforts, respectable performance, higher safety standards and a comfortable ride. Taxation and import duties keep German luxury fossil fuel cars well above this price point in India.
Taxation on Tata Harrier SUV if it were electric instead of diesel
Let’s get into a breakup of the GST costs with the example of a Tata Harrier and show why selling a ₹2,500,000+ eV will better seed the Indian eV revolution while making it more viable for Indian OEMs to survive the eV game until we hit mass volumes.

Indian GST taxation on premium cars, as explained, is ridiculously high. GST and cess for the full-size SUV, Tata Harrier (with a 2L Diesel engine that puts out 168BHP) or Jeep Compass that it compares with is 50% on top of the basic price. A similar example could be made of an all-electric Mahindra Thar or XUV700 with similar battery and charging specs.
To make my assertions real, I had got a quotation from a Tata Motors dealership which, as seen in the table below, breaks down the tax in the Harrier Diesel XZA+ DT column. The manufacturer charges the dealership (basic cost) only 55.6% of the on-road price; that is all Tata Motors gets to keep for having designed, procured parts, manufactured, marketed, and sold the car! Imagine if most of that remaining 44.4% went towards buying the electric battery and motor!
Add to that all the money saved on the diesel engine, the transmission, the lubricants & gearbox. Suddenly a lot of money seems to be freed up to design a world-class electric SUV, as extrapolated in the Harrier eV XZA+ DT column. In this eV extrapolation, Tata Motors gets to keep 91.6% of the on-road price, with the rest going to taxes and insurance, an improvement from 55.6% in diesel!

My claim is based on the extrapolated potential cost of an 80kWhr Harrier battery pack. Based on public interviews of Tata Motors leadership, I learnt that the battery cost of the Tata Nexon eV which was 30% of the basic price. I used the ex-showroom price of Tata Nexon eV XM and back calculated the battery unit costs to be roughly ₹13,236/kWhr, which, as expected, is almost twice the global average due to low demand for eVs in India compared to the total cars sold. If my battery extrapolation is wrong and Tata Motors can source lithium-ion cells closer to the lower global average, it strengthens my case to build a no-compromise premium SUV.
In my super conservative estimate, I have added the price of the 80kWhr battery but did not subtract the costs of the 2000cc Harrier engine sourced from Fiat, the Hyundai torque converter gearbox, or the transmission; these components should more than pay for the electric motor and charging power electronics. I believe the Harrier eV price sans battery could be even lower than the diesel Harrier.
I have imagined a no-compromise Harrier eV with 150kW(201.1BHP) motors and a real-world range comfortably > 500km (ARAI projected range would be 826.29km for the 80kWhr battery). For charging speeds, consider 3-phase 32A AC charging (22kW) and 200kW fast DC charging. This is far more desirable than the already compelling 168BHP diesel Harrier in the market today. The minor upfront premium for the eV is less than ₹190,000 or a minor 7.71% price increase for a much smoother yet more powerful driving experience while being green.
Let us not forget that the super quiet green eV also offers better ride quality comparable to much pricier luxury vehicles due to the absence of a noisy engine and related gearbox and transmission systems.
This car would kill range anxiety without breaking the bank. There are many ideas on how differently the Tata Harrier eV should be outfitted to compete with the likes of the BMW iX3, Mercedes EQC, Jaguar I-Pace and other full-size electric SUVs. But the Germans won’t like the sound of that! (No pun intended).
Mahindra and Mercedes get it

On India’s 2022 Independence Day, Mahindra unveiled its intention to produce 5 full-size SUVs beginning Dec 2024 with its larger battery-back SUVs. Even their XUV400, built on the same SsangYong platform as the fossil fuel XUV 300, has been stretched beyond 4 meters to take advantage of the 5% eV GST tax break. Unfortunately, it will be compared to its slightly smaller cousin, the XUV300, which looks and feels similar.

Mercedes, with their Indian assembly of the EQS 580 flagship electric, have avoided the sky-high import duty levied on completely built units (CBU) but are pocketing the GST tax savings and charging almost ten million Rupees more than its fossil fuel S class cousin.
How the eV saves money for the owner each year
eVs are incredibly cheap to drive and maintain; the cost per km is ~₹1/km. Given the present prices of diesel and real-world mileage of the diesel Harrier, it costs ₹7.7/km to operate with far more expensive maintenance.
Even with our conservative example of the eV Harrier costing ~₹190k more than the diesel counterpart, the difference can be quickly recouped. Based on back-of-the-napkin calculations, an eV Harrier should be able to break even this price after 29,900 km or 18- 24 months.
If you take cash rebates given by some state governments into account, a buyer can achieve break-even in just 6-9 months.
Call to action for vehicle manufacturers
To promote eVs in India, the government decided to lower GST to a more reasonable 5% on cars of all sizes. The road registration tax for eVs in most Indian states is either zero or a flat nominal charge, thus again giving back more money to the manufacturers to build a bigger battery, longer-range eV. Herein lies the opportunity for the car OEM to sell a larger premium car as an eV with a bigger battery that is comparable in price to the ICE offering in that size without any compromise on the real-world range.
While many industry experts argue that the government needs to provide additional incentives to promote the sale of eVs, there already exists a powerful lever with premium eVs. There is more than enough tax money available to the eV car makers to spend on the bigger battery. Buyers would gravitate towards the electric versions of their most desirable cars, thus justifying the domestic GigaWattHour scale battery production, which would tip the scales towards mass market adoption.
The opportunity is there for the taking if Indian car manufacturers turned to eVs to bolster sales of their premium cars while doing their part to organically spark India’s eV revolution.
In the next article, I will cover the opportunity for manufacturers to build bigger battery eVs and how eV adoption challenges can be converted into opportunities.
Editor’s note
This article has been reproduced from Aditya’s LinkedIn, which can be accessed here. The GST rates and the quotation for the TATA Harrier are quoted as were true in early 2021. The numbers in figure 6 refer to that quotation.
© Aditya Govindarajan. Reproduction in part or whole is only permitted with prior written approval.
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