After Tesla Proposal, Government Considers Import Tax Cut for Automakers That Manufacture in India
After Tesla Proposal, Government Considers Import Tax Cut for Automakers That Manufacture in India

India is working on a new electric vehicle policy that would slash import duties for automakers committed to some locally-made cars, following Tesla’s proposal, people familiar with the matter said. Tesla is considering entering the domestic market.

The policy under consideration could allow automakers to import fully-built electric vehicles to India at a tax cut of as little as 15%, compared with the current 100% tax rate on cars priced above $40,000 (nearly Rs 3.3 lakh) and the rate on regular cars. 70%. The rest, two sources, including a senior Indian government official, said.

For instance, Tesla’s best-selling Model Y starts at $47,740 (nearly Rs 3.9 lakh) in the US before taxes.

“There is awareness of Tesla’s proposal and the government has shown interest,” said the official familiar with the matter.

Such a policy, if adopted, could drastically reduce the cost of importing electric vehicles, something local automakers have been keen to avoid. It could also open the door for global automakers other than Tesla to enter the world’s third-largest auto market, where electric vehicles account for less than 2% of total vehicle sales but are growing rapidly.

Lower import duties could help Tesla sell its full range of vehicles in India, not just new cars it wants to produce locally, a third source said.

Other countries have taken similar steps to spur EV manufacturing commitments. Indonesia, for example, has offered to reduce import tariffs from 50% to zero for electric carmakers planning to invest in a move aimed at attracting Chinese companies and Tesla.

India’s commerce and finance ministries, as well as Tesla, did not respond to requests for comment. The policy is still in the initial stages of deliberation and the final rate could change, two of the sources said.

Tesla made its first attempt to enter India in 2021, pushing officials to reduce the 100% import tax on electric vehicles. Talks between Tesla and the Indian government broke down last year when officials said the company had to focus on local manufacturing first.

Tesla recently told Indian officials that it is keen to build a local factory to produce a new electric car priced in the $24,000 (nearly Rs 2 crore) range, about 25% cheaper than the current entry-level model. markets and exports.

“After careful consideration”

Outside the U.S., Tesla currently has a factory in Shanghai, its largest in the world, and a factory outside Berlin. The company is building a new factory in Mexico focused on developing a new mass-market electric vehicle platform, which Musk said will cut costs for consumers.

Regarding the India plans, Rohan Patel, Tesla’s senior director of public policy and business development, has met with senior officials privately in recent weeks. Indian Prime Minister Narendra Modi held talks with Chief Executive Elon Musk in June and has been closely monitoring the progress, Reuters reported.

Tesla told Indian officials that a potential Indian factory could be operating at full capacity by 2030, one of the sources said.

Indian officials said there would not be any special incentives for Tesla to enter the market, with Tesla touting a proposal of low import duties conditional on manufacturing commitments to satisfy both parties, the sources said.

Still, New Delhi will proceed slowly in considering the policy proposal, as any reduction in taxes on imported electric vehicles could disrupt the market and unnerve local players such as Tata Motors and Mahindra, which are investing in domestic production of electric vehicles.

“Although the government is keen to buy Tesla, it will still go through a lot of deliberation. This is because of the impact on domestic companies,” the Indian official said.

© Thomson Reuters 2023

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