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In 20192020, Nepal imported just 1 unit of fourwheeler electric vehicle (EV), but that number grew to 13,578 units or over 70% of its total imports by 202425. The Himalayan country’s EV imports have far outpaced inward shipments of cars powered by internal combustion engines (ICE) in recent years.

That was a remarkable stride for a lowermiddleincome country as the world average of batterypowered mobility is still around 20%. However, this rapid transition of the neighbouring kingdom into EVs has enabled China to quickly replace India as the dominant player in Nepal’s automobile market.

In 201718, Nepal imported 19,895 units of fourwheelers – including cars, passenger buses and minibuses — and 18,681 of these (93.8%) were shipped from India, with China’s share being just 45 (0.23%).

For the next three years, the market shares have remained more or less the same, but the change has been dramatic since 202223. In 202425, Nepal imported 19,257 fourwheeler units, and 53% of these came from China, and just under 44% from India (see chart).

Taxes, subsidies and China’s firstmover advantage

India might lose its share in the neighbour’s car market further. This is because Nepal, battling an air pollution crisis, has set a target to have 90% of new private and 60% of new public fourwheeler vehicles sold in the country to be batterypowered by 2030.

India too has been dispatching a few hundred EV units to Nepal in recent years. But it could not accelerate such shipments amid tough competition from Chinese players, and the relative slow pace of its EV manufacturing industry.

One key factor that has led the surge in import of EVs by Nepal is the favourable tax structure for EVs as compared to ICE vehicles. Nepal taxes fossil fuel vehicles heavily at anywhere between 180238%, inflating their prices to the consumers. “An ICE car priced at Rs 10 lakh in India could be sold at Rs 40 lakh (25 lakh Nepalese rupee or NPR) in Nepal due to the high import taxes,” Sirish Bhattarai, who runs a car dealership in Kathmandu, selling mostly Indian cars, told FE.

The tax structure is not very benign for EVs either, but the smaller vehicles, which are more in demand, attract significantly lower levies. Nepal levies customs duty of 15% and excise of 5% (countervailing duty on imports) on 050 kilowatt (kW) EV, while the corresponding taxes are 20% and 15% for 51100 kW vehicle, and 30% and 20% respectively for units in the 101200 kW range.

As a sales agent at Agni Group, who are authorised distributors of Mahindra Auto in Nepal, said: “Our cheapest electric SUV costs about NPR Rs 52.5 lakh (Rs 32.8 lakh INR). In comparison, a petrolpowered SUV like the Mahindra XUV 700 costs anywhere between NPR Rs 74 lakh (Rs 46.2 lakh INR) to NPR 1 crore (Rs 62.5 lakh INR) depending on the variants”. The person added that most EV sellers in Nepal offer buyers free chargers and other sops.

BYD Dolphin from China is the cheapest EV car being sold in Nepal, with a starting price of NPR 41.15 lakh, and it has lately become popular.

While the financing of EVs has been easy in Nepal, a recent tweaking of the norms has caused some concerns. “Until recently, banks offered loans covering up to 90% of the car’s costs. The Nepal Rastra Bank, however, added an impediment by reducing loantovalue (LTV) ratio from 90% to 60%, thereby doubling the required down payment. This means that for a specific EV model which required a down payment of NPR 55,0000. Now, after the revised financing structure, can now be bought with upfront payment of around NPR 11 lakh,” a senior executive at MAW Vriddhi Autocorp, the official distributor of Changan EVs in Nepal, told FE.

A few other auto dealers FE reached out to said that while the revised financing structure has affected their sales in the lowrange category, the decline is not very steep.

Hydro power, charging infra and regional geopolitics

The other factor powering the rapid adoption of EVs is the availability of cheap energy, thanks to Nepal’s abundant hydro power resources. According to a report by the Asian Development Bank, Nepal river’s have the technical potential to generate 83gigawatts (GW) of electricity, of which 42GW is considered economically feasible. Thanks to that abundant source of power, Nepal is quickly expanding charging networks and imports of EVs have surged, according to recent reports.

Nepal Electricity Authority (NEA) has deployed 62 public charging stations, while private operators have contributed to a network of over 750 charging points, Kathmandu Post reported. “Nowadays, EV charging stations are available every 50 to 100 km. That’s how widespread the network has become for a small country like Nepal,” added Bhattarai.

While Chinese players like BYD, Deepal, MG and Xpeng are leading Nepal’s EV market, India could hope to make some inroads with new players eyeing export markets. Vietnam’s VinFast Auto has recently announced that its new India factory in Chennai would also be used for exports to other South Asian countries, besides catering to the burgeoning Indian market.

Incidentally, Nepal’s push for hydro power followed a dispute with New Delhi in 2015 that put a lid on its petroleum imports from the bigger neighbour. Nepal had failed to comply with India’s norms and the latter retaliated with a virtual blockade of trade. The crisis sent fuel and domestic LPG prices soaring in the Himalayan nation which was just reeling from a devastating earthquake earlier that year. The Nepal government has started investing heavily in hydro power and grid infrastructure.