Electric vehicle imports wobble as government policy fluctuates

Nepal imported a record number of electric vehicles (EVs) in the last fiscal year 2021-22 after seeing their imports swing for several years.

In 2019-20, imports stood at 575 units before falling by more than half to 249 units in 2020-21 due to Covid-19 restrictions and higher taxes. But in the last fiscal year that ended on July 16, imports increased sevenfold to 1,807 units.

According to the Customs Department, battery-powered cars, jeeps and vans worth a record Rs 5.32 billion entered Nepal in 2021-22.

Dealers said car buyers made reservations seven months ago, showing there is strong demand. The future looks bright for electric vehicles, as all signs point to strong demand in the future.

They say government policy to accelerate the transition to zero-emission transport is the key driver behind the push for electric vehicles in Nepal. Steadily rising gasoline prices have also made people think about switching to battery-powered automobiles, dealers say.

Despite the optimistic outlook, the auto sector is wary of the ever-changing government policy.

Last year’s budget cut import duties on battery-powered cars from 40% to 10% in a bid to increase the use of electricity and promote environmentally friendly transport.

Demand for electric vehicles has swelled, helped in large part by a sharp rise in fuel prices, insiders say.

“Government policy has certainly contributed to the proliferation of electric vehicles in Nepal,” said Dhurba Thapa, president of the Automobile Dealers Association of Nepal.

Along with no excise duty and lower tariffs, auto loans of up to 80 percent of the car price provided by banks and financial institutions have boosted buyer confidence, electric car traders said.

Sandeep Sharma, marketing director of Laxmi Intercontinental, the authorized distributor of Hyundai cars in Nepal, says the demand for electric vehicles has increased. “But there are red flags,” he said.

“The country’s economy is not performing well, and the government’s decision to rectify the situation has slightly impacted the auto market,” Sharma said.

“As banks are facing a liquidity crisis, it is not easy to get a bank loan to buy a car, including electric vehicles,” he said.

Auto traders say the government has not restricted imports, but rising material prices globally could dampen demand for electric vehicles.

In 2020-2021, then Finance Minister Yubaraj Khatiwada imposed excise duties ranging from 30 to 80 percent on electric vehicles, depending on engine capacity. The customs duty was set at 60%.

Khatiwada justified his decision by saying that electric vehicles, especially SUVs, were luxury items.

Immediately after the duty increase, prices for electric vehicles almost doubled, making them less competitive with fossil-fuel vehicles.

Last fiscal year, the budget presented by then finance minister Bishnu Paudel removed excise duties on electric vehicles. It also reduced customs duties to 10%.

Paudel explained that this decision was aimed at promoting electric vehicles. He said Nepal plans to switch from light-duty gasoline vehicles to electric vehicles by 2031 and announced a strategic plan to reduce fuel imports.

From this fiscal year, the government decided to levy excise duties in addition to customs duties on high-performance electric vehicles, which made them more expensive, according to insiders. Previously, there was no excise duty on electric vehicles.

The budget presented by Finance Minister Janardan Sharma imposed a 30% excise duty on vehicles with 100-200 kW engines.

An excise duty of 45% was levied on the import of electric vehicles equipped with motors with a capacity of 201 to 300 kW. And 60% excise duty was imposed on electric vehicles with an engine capacity of more than 300 kW.

As a result, prices for electric vehicles have started to rise again.

“While the budget increased duties on 100kW battery electric vehicles, the price of a Hyundai Ioniq-5 has risen from Rs 8.2 million to Rs 10.6 million,” said Sharma of Laxmi Intercontinental.

“It had an impact on sales. Despite an increase in demand for electric vehicles, sales conversion is low due to the lack of loanable funds from banks,” he said.

“About 95% of car buyers get auto loans, but these days it’s not easy. Interest rates have also increased.

There is a supply constraint in the case of Hyundai electric vehicles because they come from South Korea. Car dealerships say it normally takes three months to deliver electric vehicles reserved by customers. “Electric vehicle reservations have increased by 40%,” Sharma said.

On the two-wheeler front, the import of electric machinery almost doubled in the last fiscal year compared to the previous fiscal year. Nepal imported 5,455 electric motorcycles worth Rs 481.32 million in 2021-22.

Sameer Shrestha, project and marketing manager of Cimex, BYD’s authorized distributor in Nepal, said he sold about 160 electric vehicles in the past eight months.

China’s BYD is the world’s largest electric vehicle manufacturer.

“Sales are increasing,” Shrestha said. But he fears that the change in government policy will impact the growth cycle. Taxes have gone up again and prices are on the rise.

“Prices of our ready-to-launch models with 150kW battery capacity have increased by 2.5 million rupees with the change in Nepali government tax policy.”

The government took measures to discourage the importation of gasoline and diesel-powered vehicles, but these proved ineffective.

According to the Customs Department, Nepal imported automobiles worth 99.42 billion rupees in the last fiscal year 2021-22, compared to 97.37 billion rupees in 2020-21.

Imports of passenger vehicles totaled 14,860 units worth Rs 16.70 billion.

“Import figures increased despite the restrictions as orders had already been placed before the government announced the ban,” Thapa said.

In April, the government tightened auto imports in a bid to prevent the country’s foreign exchange reserve from further depleting.

But imports of two-wheelers fell 47.81% in the last fiscal year. The country imported 181,599 two-wheelers worth Rs 17.19 billion. The import bill for the two-wheelers in the previous financial year was Rs 32.94 billion for 353,534 units.

In December last year, Nepal Rastra Bank unveiled a new policy requiring importers to maintain a 100% margin amount to open a letter of credit to import 10 listed types of goods, including automobiles.

The central bank has decided to discourage the import of these goods considering that they are “non-essential”.

In April, the government announced a complete ban on the importation of petrol and diesel-powered vehicles and motorcycles with an engine capacity greater than 250 cc.

On July 18, the government extended an 81-day import ban on 10 types of goods for another month and a half, citing the lack of improvement in the country’s foreign exchange reserves. The ban will remain in effect until the end of August.

Due to the import restriction, the Automobile Dealers Association has decided not to hold its annual NADA auto show this year as well. The event is one of the largest auto shows in the country.

“Until two years ago, electric vehicles were the second choice of customers in Nepal. Now it’s the first choice,” Shrestha said.

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