Reuters reported this month that VinFast has shelved plans to manufacture three EV models in India and will instead assemble imported parts. VinFast is not alone. Unlike earlier entrants such as Hyundai, Honda and Toyota, many newer automakers are relying more on imports, assembly and partnerships than deep localisation. At first glance, this appears to signal weaker manufacturing commitment. In reality, it reflects a broader shift in the economics of entering the Indian market.
How Do Car Companies Enter India?
Foreign car makers can enter a country in many ways.
A completely built unit, or CBU, is a finished vehicle imported into India. The manufacturer does almost everything overseas and pays the applicable import duty on the complete car. Then there is something called a completely knocked-down, or CKD. A kit arrives as separate components that are assembled in India. An SKD, or semi-knocked-down, kit arrives partly assembled, with some major components already put together. The manufacturer assembles the larger parts here. CKD and SKD assembly reduces the customs burden compared with importing a finished vehicle. They are usually the starting point for local sourcing.
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The distinction is important because India historically imposed very high duties on CBUs while keeping duties on components and kits lower. A company selling a handful of expensive cars could absorb the cost of importing finished vehicles. A mass-market car company has a much stronger incentive to assemble locally, develop suppliers and gradually increase domestic content.
When Maruti Udyog Ltd. launched the iconic Maruti 800 in December 1983, it started as an SKD, then moved to localisation. It was India’s first foreign collaboration between the Indian government and the Japanese car company Suzuki. A foreign partner adding technology and expertise on top of the Indian industrial base became a template right from this venture.
Early Fruits of Globalisation
India relaxed licensing and foreign investment rules during the 1991 reforms. However, it kept import tariffs elevated. Under the 1997 Auto Policy, companies had to commit to at least 50% indigenisation (using locally produced components) by the third year and 70% by the fifth year. That changed the investment calculation.
Hyundai’s (entered India in 1996) success shows how a foreign entity builds the ecosystem. It added engineering, research and export capabilities, turning India into an important production base within its global network. Honda (1995), Ford (1995), General Motors (1996), Toyota (1997) and Daewoo (1995) followed different expansion versions. Some entered through joint ventures, some through wholly owned operations, and some subsequently changed their ownership structures.
Around the turn of the century, India removed local-content requirements for automakers and allowed 100% foreign ownership in vehicle manufacturing. As a result, localisation was driven less by regulation and more by business economics. CBUs still faced higher duties than assembling, giving manufacturers a strong incentive to assemble locally. Companies that expected sufficient volumes could justify investments because lower duties and economies of scale often offset the higher upfront costs. This produced a second generation of localisation.
Companies entered India through varied models, sharing plants, suppliers and industrial clusters instead of building entire ecosystems independently. For instance, Renault-Nissan (2005) shared a major manufacturing facility in Chennai. Volkswagen (2007) used the established Maharashtra cluster for all its brands. Fiat and later FCA used the Ranjangaon ecosystem for local production. Isuzu (2012) established its own manufacturing facility at Sri City.
Some closed plants found new owners: Tata Motors acquired Ford’s Sanand facility, and Hyundai acquired General Motors’ Talegaon plant.
In 2019, we saw two companies debuting in India. Kia built a greenfield plant in Andhra Pradesh, while MG Motor acquired General Motors’ Halol plant in collaboration with India’s JSW Group. Both focused on long-term investment and localisation.
New Government Policies Have Attracted Incumbents
Since 2020, the government has taken a targeted approach. The Production Linked Incentive (PLI) Scheme requires 50% domestic value addition. It has awarded support mostly to incumbents such as Tata Motors, Mahindra & Mahindra, Kia, Hyundai and Maruti Suzuki. They already have significant indigenisation.
The government also introduced a separate policy for new foreign EV manufacturers in 2024. Called the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), it allowed companies to import EVs at a lower 15% customs duty for five years instead of the much higher normal rate. In return, companies must invest at least Rs. 4,150 crore, set up a manufacturing plant within three years, achieve 25% local value addition by the third year and 50% by the fifth year. They could import up to 8,000 vehicles a year.
The scheme was effectively asking a new entrant to make a substantial manufacturing commitment before it knew whether it could achieve meaningful Indian volumes. The result was revealing: the application window closed in October 2025 with zero applications. That suggests the economics of building an entirely new EV manufacturing operation remain considerably harder to justify when an entrant has other ways of accessing the Indian market.
New Ways To Enter Indian Auto Industry
And that’s what we are seeing currently. We have already seen VinFast’s change of plans. But there are two more examples.
BYD (2022) and Tesla (2025) are choosing to import vehicles instead of building or assembling here. Reuters reported that Tesla had previously considered a large manufacturing operation but that its global factories had spare capacity and Indian demand was still too small to justify a bigger investment.
Then there’s another route. China’s Chery and Jetour will provide the technology and platforms to JSW. Stellantis is using Tata Motors’ platform for a new Jeep SUV; Honda is working with Tata Technologies on vehicle platforms; and Volkswagen is exploring a broader partnership with JSW covering sourcing, platforms and manufacturing.
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So, the companies are exploring all possible ways of entering India. They can import the finished car, assemble a CKD kit, use an existing plant, partner for technology, and source selected components locally. But that also means localisation can be done later.
Trade agreements are also making delayed localisation more viable. India’s current duty on imported European cars is around 110%. Under the new trade deal, that will come down to 10% in phases. So manufacturers can begin with limited imports before committing to large-scale local production. The UK trade deal follows a similar model of quotas and phased tariff cuts.
What This Means For India
The contrast is clear. Earlier foreign automakers entered India with a limited industrial base and strong incentives to localise. So they built factories, suppliers and markets together. Today’s entrants inherit that ecosystem. They can manufacture, assemble, acquire existing facilities, partner with Indian firms or import directly, depending on what makes commercial sense.
This flexibility creates both opportunities and risks. For consumers, it is largely positive. Easier market entry means more brands, more models and greater choice. But the outcome for domestic manufacturing is less clear.
Some companies will build deep manufacturing operations in India, while others may rely on imports, assembly or partnerships. Each approach creates a different level of local value addition. As a result, India may see a growing number of assembly operations without a matching increase in manufacturing depth. Successful companies may localise more as volumes grow, while others may continue the existing strategy or exit the market altogether.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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