High GST rate on hybrid cars may force Toyota to hit brakes on India plans

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Mumbai: Toyota Kirloskar Motor Pvt. Ltd will revisit its plans of introducing new models in India if the government does not reduce the goods and services tax (GST) rate on full hybrid cars, a top company official said in an interview on Monday.

The GST Council has proposed a peak duty of 43% on hybrid cars. The council lowered tax rates on 66 products at its meeting on Sunday, but hybrid cars were not among them. Finance minister Arun Jaitley hinted at after the meeting that the GST rate on hybrid cars will not be reviewed. The cars will attract a 15% cess over and above the 28% GST rate, the same as large luxury cars and sports utility vehicles.

The high GST rate for hybrid cars is a setback for the local arm of Toyota Motor Corp. that has been selling the locally made Camry hybrid cars and had planned to launch more such models. It could also adversely impact the company’s ability to meet stricter fuel efficiency norms that kick in from 2021.

“There will be little incentive for us to introduce new models in India,” said Shekar Viswanathan, vice-chairman and whole-time director at Toyota Kirloskar. He added that the auto maker would have to discontinue sales of the Camry hybrid and go back to petrol models if rates are not lowered.

Albeit on a small base, sales of the hybrid Camry, which started in India in 2013, have grown consistently and far outpaced sales of the petrol Camry in the second year of its launch. In 2016, Toyota sold 1,254 units of the hybrid and 72 of the petrol variant. It had envisaged selling 1,310 units by the end of the current year.

“Unfortunately, we are clubbed along with mild hybrids; that is why the collateral damage in that sense of the term,” said Viswanathan.

While the Camry is a full hybrid, Maruti Suzuki Ciaz and Mahindra Scorpio Intelli hybrid, are mild hybrids. A model is categorized as full or mild on the basis of the strength of the electric motor which charges the battery pack, the size of the battery and the extent to which the electrical unit is used. Currently, both models enjoy subsidies of Rs13,000 for mild hybrid and Rs70,000 for full hybrid, that took effect on 1 April 2015 under the government’s FAME scheme (faster adoption and manufacturing of hybrid and electric vehicles).

The amount of subsidy depends on the fuel efficiency of the vehicle. By definition, a hybrid vehicle utilizes more than one form of on-board energy.

“I hope the GST council has enough sagacity and makes that differentiation with regards to technology,” said Viswanathan, pointing out that considering both electric and hybrid vehicles share the same ecosystem, it makes sense to promote hybrids that are faster to adapt and do not need charging infrastructure.

With no other auto maker feeling the pinch of the peak GST rate on hybrids as much as Toyota, it’s a solo fight for the local arm of the Japanese firm, which has been caught in a policy flip-flop for the second time. (The first time was in December 2015 when the Supreme Court banned large diesel vehicles in Delhi and National Capital Region.)

Meanwhile, the firm also faces the risk of a further drop in capacity and manpower utilization. Toyota’s plant near Bengaluru can make 250,000 units, but owing to a limited presence in the volume car segment, it’s only making 150,000 units per annum.

Theoretically, the higher GST rate is also likely to impact the company’s ability to meet the CAFE II fuel efficiency norms effective from 2021, said Viswanathan. With a diesel-heavy portfolio of big vehicles, the company is banking on the hybrids to meet the norms which seek to ensure that the mileage of cars on Indian roads improves by 10% between 2017 and 2021 and 30% from 2022, while carbon dioxide emissions come down to 108 grams per litre, starting 2022. The mileage improvement will be decided on the basis of litres of fuel consumed by a vehicle to run 100km.

“Am surprised on government’s move of disincentivizing hybrids,” said Abdul Majeed, auto practice leader at PwC. The hybrids, he added, would have offered the first step in the clean technology journey. “Such sudden shifts in policy will make auto makers wary of investing in India,” he said.

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