As oil-less Nepal makes a sharp turn towards electric vehicles (EVs), neighbouring auto giants India and China have lunged forward to establish assembly plants in the Himalayan republic.

Almost a dozen Indian and Chinese investors have proposed to set up factories in Nepal following a jump in sales of battery-powered automobiles, the Department of Industry said.

In the last two fiscal years, two Indian and eight Chinese investors have submitted proposals to open assembly plants to build two-wheelers, three-wheelers and four-wheelers.

One India Technology of Haryana, India plans to spend Rs62.50 million on a factory in Hetauda to assemble electric motorcycles and scooters, three-wheeler vehicles and four-wheeler vans.

The company aims to produce 100 vans, 100 three-wheelers and 500 motorcycles and scooters annually.

Gujarat-based Spurt Electric has proposed opening an electric two-wheeler assembly unit with an investment of Rs22.50 million in the Bhairahawa Special Economic Zone.

The company plans to assemble 2,000 electric motorcycles annually.

Several groups of individual investors from China have applied to open EV assembly plants in Kathmandu Valley and adjoining Kabhre district.

A group of five Chinese nationals have proposed to establish a Rs250 million plant in Lalitpur to assemble two- and three-wheelers. They plan to churn out 5,000 two-wheelers and 2,500 electric rickshaws annually.

Another group of five Chinese investors want to spend Rs250 million to build a factory in Kathmandu to assemble electric two- and three-wheelers. They have envisaged making 3,500 scooters and 3,000 rickshaws annually.

Similarly, a group of five Chinese nationals have proposed opening an assembly unit to produce two- and three-wheelers with an investment of Rs250 million. The company plans to assemble 3,500 electric scooters and 300 electric rickshaws annually at its plant in Kathmandu.

A group of four Chinese nationals have applied to invest Rs400 million on a factory on Sankhu Road to assemble 4,000 two-wheelers annually.

Another four Chinese nationals plan to open an electric two- and three-wheeler plant in Lalitpur with an investment of Rs200 million. They have proposed to build 3,500 scooters and 3,000 rickshaws annually.

According to the department, another group of four Chinese investors have proposed assembling electric two- and three-wheelers in Kabhre. They plan to spend Rs250 million on a factory to assemble 3,500 scooters and 3,000 three-wheeler rickshaws annually.

One Chinese national has proposed opening an electric scooter assembly unit in Godavari Municipality with an investment of Rs30 million. The company plans to produce 500 electric scooters annually.

Two Chinese nationals have proposed assembling electric two- and three-wheelers with an investment of Rs40 million in Suryabinayak Municipality. They have proposed to manufacture 3,200 three-wheelers and 4,000 two-wheelers annually.

“Investors may have been attracted to open EV plants observing Nepal’s lucrative automobile sector,” said Sunil Rijal, vice-president of the Nepal Automobile Dealers’ Association (NADA).

Automobiles are Nepal's second largest import after petroleum products in terms of value.

In fiscal 2018-19 before the Covid-19 pandemic, auto imports were worth Rs91.15 billion. Imports increased sharply to Rs123.69 billion in 2020-21 in the midst of the pandemic as people wanted to avoid crowds and travel in their own vehicles to prevent the spread of the coronavirus.

According to the Department of Customs, vehicle imports plunged to Rs51.96 billion in the last fiscal year after the government imposed an import ban to prevent the depletion of foreign currency reserves.

Industry insiders say that the government’s preventive measures and rising fuel prices prompted Nepalis to switch to EVs.

In the last fiscal year, the import of EVs was worth Rs12.51 billion with the country importing 10,964 units of four- and three-wheelers.

The import of electric two-wheelers amounted to 11,184 units worth Rs1.09 billion.

Five years ago in 2018-19, electric two-wheeler imports totalled just 2,047 units worth Rs100.10 million. According to the Department of Customs, the import of four-wheelers amounted to 4,745 units worth Rs1.33 billion.

EVs entered Nepal as far back as 1975, with the introduction of an electric trolleybus line in Kathmandu. Although the trolley bus was officially put to a merciful end in 2009 after years of gross mismanagement, actual service had stopped years earlier.

In 1993, battery-powered Safa tempos, a number of which can still be seen on Kathmandu's streets, were introduced to replace diesel-run, smoke-pumping three-wheelers.

The Nepal government has introduced policies to encourage EV adoption. Unlike fossil fuel-powered four-wheelers, which incur taxes of up to 261 percent, private EV four-wheelers were taxed only 23 percent (10 percent import tax and 13 percent VAT) until the last fiscal year.

However, the government changed its policy in the current fiscal year. The customs duty on EVs below 50 cc is 10 percent. For 50-100 cc EVs, the customs and excise duties are 15 percent and 10 percent, respectively.

For EVs of 100-200 cc, the customs and excise duties are 20 percent each. For EVs in the 200-300 cc range, the customs and excise duties are 40 and 45 percent, respectively. For 300 cc EVs, the customs duty is 60 percent.

NADA Vice-President Rijal said the price of EVs would be even lower if they were assembled in the country.

"The government has announced tax waivers on the import of components to assemble EVs," Rijal said.

The budget for the fiscal year 2022-23 has provisioned incentives for companies looking to establish electric four-wheeler plants in the country.

In the last fiscal year, the government announced a 40 percent income tax exemption for five years for electric car assembly units.

This fiscal year, the government has targeted to increase the per capita electricity consumption to 450-kilowatt hours with the aim of reducing fossil fuel imports significantly.

Total electricity production will reach 3,600 megawatts by the end of the next fiscal year, according to the budget statement.

“Charging stations will be expanded, and private sector financing will be facilitated to promote the use of electric vehicles,” the budget statement said.

Rijal said that considering EV sales and demand, Nepal is taking big strides. “But with frequently changing policies, investors are still uncertain.”