Hybrids face headwinds as the mood turns electric

Hybrid cars are in for a rough drive in India’s new Goods and Services Tax regime, which kicks in from July 1.

They will be slapped with a levy of 43 per cent (28 per cent GST + 15 per cent cess) putting them at par with mid/large sedans and SUVs. On the other hand, electric cars will only be taxed 12 per cent, which has prompted automakers like Mahindra & Mahindra to opt for this route going forward.

The company said on Wednesday that it would pull the plug on full hybrid car development while continuing to sell some micro hybrids ‘if customers are willing to pay for it’.

“Hybrids are not affordable if the cess is the same as non-hybrid options,” said Pawan Goenka, Managing Director, M&M. We will not be launching any new hybrids but will continue with micro hybrids.”

M&M’s Scorpio SUV has a ‘mild hybrid’ option that reduces fuel consumption by up to seven per cent. The company sells only about 75 electric cars a month but is now ramping up capacity to produce 5,000 units a month in two years.

“We have to prioritise electric vehicles. We will have products ready in the rest of three hybrid categories: mild hybrid, mid hybrid and micro hybrids and stop working on full hybrids,” said Goenka.

However, he indicated that even though the company will have hybrid products ready, it may not launch them under the current GST plan. “What we launch will depend on the final price to the consumer and whether he/she is willing to pay,” he added.

On the other hand, Toyota Kirloskar Motor will have reasons to feel concerned about the future of its Prius, the face of eco-friendly cars for nearly two decades now worldwide. It entered the Indian market this February but may not make the cut if the GST levy is here to stay.

Some years ago, Honda had brought the Civic Hybrid to India but there were virtually no takers because of its steep price tag. Realising that it was saddled with a whole lot of unsold cars, the company decided to slash prices and liquidate its stocks.

The biggest challenge for full-electric and hybrid cars in India is the absence of a support system in terms of parts. Tesla CEO, Elon Musk, has recently hinted that ‘the supply doesn’t exist in India’ to support local sourcing norms.

M&M’s electric car portfolio has barely 40 per cent localisation as batteries, controllers and other key parts are not made here. It remains to be seen if the GST levy on hybrids will impact Suzuki Motor Corporation’s ₹1,200-crore investment for lithium-ion batteries planned in India along with Denso and Toshiba.

Suzuki offers only a mild hybrid option with its Ciaz sedan. The objective of setting up the factory was to ensure stable supply of battery packs for Ciaz and other future hybrids and promote the cause of clean vehicle emissions. It will be a huge fillip in terms of costs since so far these batteries are largely imported.

The Centre’s support is critical for hybrid vehicles to pave the way for a complete electric ecosystem by 2032. It is quite likely that the levy on hybrids will be reviewed all over again given that the country is serious about cleaning up vehicular emissions and has embarked upon an ambitious programme to jump directly to Bharat Stage VI by 2020.

In this backdrop, it only makes sense to make the most of what hybrids will have to offer as a cleaner option. To go completely electric may just take longer since charging infrastructure will be required on a massive scale to make this happen. Meanwhile, Friday is scheduled to see an electric cab fleet of Mahindra e20s and e-Veritos being inaugurated in Nagpur, which will perhaps expand to other parts of the country.