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Debate raging in India over hybrids vs EV incentives

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Indian state's tax waiver for hybrids spooks EV makers

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State says reviewing objections, no decision on rollback

By Aditya Kalra and Aditi Shah

NEW DELHI, Aug 2 (Reuters) - Hyundai, Kia Motors, Tata

and Mahindra are lobbying India's most populous state not to

offer incentives for hybrid cars, saying the move - set to help

rivals Toyota ( TM ) and Maruti Suzuki - would hit targets on adopting

electric cars and investment plans.

Four separate company letters to Uttar Pradesh, seen by

Reuters, highlight the rivalry between automakers in a country

where taxation is skewed in favour of EVs.

In a major lobbying win for Toyota ( TM ), Uttar Pradesh,

which alone accounts for 10% of India's car sales, waived

registration taxes on some hybrid cars last month, making them

10% cheaper and resulting in savings of up to $5,200 on a Toyota

Camry hybrid sedan, for instance.

Hyundai, Kia, Tata and Mahindra &

Mahindra have not publicly commented on Uttar

Pradesh's move, but their letters to the state show they are

opposing the tax waivers, citing the impact on India's goal of

ensuring that 30% of new car sales are electric from 2030.

Hyundai, which is gearing up for a $3 billion Indian IPO,

said in a July 12 letter that the move would "derail"

electrification of transport, while Kia said promoting hybrid

vehicles would negatively impact widespread EV adoption.

Mahindra's letter flagged concerns about disruption to the

EV market.

Tata, which raised $1 billion from private equity firm TPG

in 2021 for its EV business, said in its July 11 letter that

favouring hybrids put at risk the industry's $9 billion

committed for developing EVs. It added this investment was the

result of a "clear focus" on the sector by Prime Minister

Narendra Modi's government.

Hyundai declined to comment, while Tata, Mahindra and Kia

did not respond to queries. None of these companies sells

hybrids in India.

Vijay Kumar, an Uttar Pradesh transport official, told

Reuters the state government was reviewing objections received

from some companies and that no decision had been taken. An

industry meeting will be held on Aug. 11, he said.

Modi's government imposes a federal tax of just 5% on EVs,

while hybrids are taxed at 43% - just below the 48% tax for

gasoline cars. Road and registration taxes in states - like the

one Uttar Pradesh waived - are extra.

India registered 4.2 million car sales in its 2023-24

financial year, with hybrids and EVs accounting for fewer than

100,000 sales each.

Uttar Pradesh's tax move has triggered concerns among EV

players that other states could follow suit, executives say.

Hybrid proponents, however, say there is not enough charging

infrastructure for EVs in India and hybrids - which use both a

battery and combustion engine - should be promoted as they are

less polluting than fossil fuel-only cars.

In a statement, Maruti said: "If in addition to

EVs, hybrids get encouragement, it will bring major incremental

gains towards national objectives of oil import reduction and

CO2 reduction." Toyota ( TM ) did not respond to Reuters queries.

(Reporting by Aditya Kalra and Aditi Shah; Additional reporting

by Saurabh Sharma in Lucknow; Editing Mark Potter)