How much will electric cars cost now?

The same Cabinet meeting on 1 October that decided to nominate Yubaraj Khatiwada as Nepal’s new ambassador to the United States also partially reversed a hefty tax increase on electric cars that he announced as finance minister in May.

But the irony was lost on top government officials.

The initial public joy was replaced with dismay as the reality sunk in – the tax reversal was not going to bring down the price of electric vehicles by much, and the higher capacity battery-powered cars would remain almost as expensive.

“It looks like the prime minister’s office was under public opinion pressure ever since the budget announcement that raised the tax on electric vehicles, so they had to show that they were doing something,” said one electric vehicle importer. “But this is a cosmetic decrease.”

Indeed, Khatiwada’s tax increase made a mockery of Prime Minister Oli’s own declaration in 2018 that Nepal would convert 20% of its vehicles to electric by 2020. No one believed the government could meet that goal, but at least it showed a commitment to shift to renewable energy in transport.

Last month, after he stepped down as finance minister because his term in the Upper House expired, the un-elected Khatiwada served briefly as the prime minister’s economic adviser. Baluwatar insiders say he was firmly against any reversal on his steep tax hike in May.

Khatiwada’s budget increased the price of small and mid-sized electric vehicles by 55-59%, but the revision brings the price down by only 17%.

In other words, the price of an electric vehicle like the Mahindra e2O that used to cost Rs2.6 million after taxes were slashed in 2016, went up to Rs3.6 million after the budget tax increase this year. With last week’s revision, the same model with the same options will now have a price tag of approximately Rs3 million.

Electric SUVs like the Hyundai Kona or the Kia Niro with higher kW that used to cost Rs6.6 million before the budget, shot up to Rs9.5 million, but may now fall to just Rs8.5 million depending on the mark-up. This could be about the same as the petrol or diesel versions of the same SUVs.

“The budget decision killed the electric car market, and the tax revision does not do much to restore confidence, and definitely does not promote electric transport,” says Cabinet Shrestha, whose Agni Group represents India’s Mahindra, makers of the e20.

Like most other electric car importers, Mahindra also brings in petrol and diesel vehicles that include SUVs, pickups and vans. While the sale of petroleum vehicles is picking up ahead of Dasain, they say their investment in electric car showrooms, separate service centres for battery-powered cars, and charging stations across the country will have been in vain.

The Nepal Electricity Authority (NEA) was losing Rs2 billion a month in revenue during the lockdown because of the reduction of industrial demand and increase in generation capacity because of a robust monsoon this year. NEA’s chief Kulman Ghising made an impassioned plea before he stepped down last month to increase consumption of electricity with electric appliances and battery-powered cars.

The rationale supporting a shift to electric cars is logical: 15% of Nepal’s total imports go to buy petroleum products from India totalling Rs215 billion annually. Even if this could be reduced by 10% it will mean considerable savings for the country. This in turn will lessen air pollution in urban centres, which has reduced the lifespans of Nepalis because of chronic obstructive pulmonary disease (COPD). With the Covid-19 scare, air quality could be a life-or-death issue.

However, the government itself relies on its high tax on petroleum products which is the mainstay of its revenue. In addition, lobbing by the fossil fuel lobby at the Finance Ministry appears to be stronger than lobbying by the importers of electric cars.

Khatiwada himself justified the tax increase in his budget speech saying electric SUVs were for the wealthy, and they should be taxed like any other SUV. Having Prime Minister Oli’s ear meant that Khatiwada could convince him that there should be no rebate on electric vehicles. Under pressure to show his green credentials, Oli last week announced the fig-leaf tax reduction.

“We are in no position to promote electric vehicles anymore,” an importer of high-end battery-powered SUVs told Nepali Times on condition of anonymity. “If there is no cost differential with a similar capacity petrol SUV, Nepali customers will not buy electric. There has to be an incentive.”

After the budget announcement, there are 450 vehicles still stuck at customs and the International Container Port in Birganj. Importers had been waiting for a government decision to revise the tax, but now have no option but to clear the vehicles.

The extra cost will be passed down to customers who had booked the vehicles, and some of them will be paying up to 50% more than they would otherwise have. Some buyers have cancelled their orders.

Before the budget in May, electric cars only had to pay 10% excise and 13%VAT, minimal customs duty, and the Rs30,000 annual road tax was waived. This had led to a dramatic spurt in electric car sales in Nepal because electric cars were more competitive than fossil-fuel cars which are taxed at 260%.

Further improvements in range to 480km, and the reduction of fast charge times of plug-ins to 30 minutes made them popular for cross-country drives. Kia and Hyundai, for instance, could not keep up with a surge of demand from Nepali buyers.

However, the budget in May raised the total tax for electric vehicles to between 120-140%, which priced battery cars higher than a petrol or diesel car of the same size. Electric vehicles of peak power 50-100kW had to pay 40% excise, 50% if it was 100-150kW. The excise went up to 60% for battery cars with peak power of 150-200kW.

But although last week’s Cabinet decision reduced the tax on smaller capacity e-vehicles by 80% of the increased amount, and by 75% for cars in the 40% excise bracket, there were only minimal reductions for cars with higher kW.

Most electric vehicle importers said they would not be importing any more units after clearing their present stock. Customers will not buy electric cars which cost the same as petrol cars even though they save money on fuel because of the perceived lower resale value.

Nepal had a chance to be ahead of its neighbours, but will now be going electric only because India and China are shifting to electric vehicles. By 2030, India’s goal is for 30% of vehicles manufactured in the country to be electric. China’s target is to ensure that 25% of all vehicles in the country will be plug-ins by 2025.

Says Shrestha of Agni Group: “Electric vehicle sales were picking up, we thought there was a bright future. But Nepal has gone back five years.”