Tesla in India: India planning to reduce import duties for local OEMs

Following a proposal by Tesla, which is considering joining the domestic market, India is working on a new

electric vehicle

According to two individuals, including a senior Indian government official, the strategy under consideration might allow manufacturers to import fully-built EVs into India at a reduced tax of as little as 15%, down from the current 100% that applies to vehicles that cost more than $40,000 and 70% for the remainder.

For instance, the base price of Tesla's most popular Model Y in the United States is $47,740 before tax credits. The individual, who is knowledgeable about the matter, stated that there is an agreement with Tesla's proposal and the government is expressing interest.

Requests for comment from Tesla and India's commerce ministry, which is working on the idea, went unanswered. When questioned about the decision, Finance Minister Nirmala Sitharaman stated to reporters, "There is no suggestion in front of me."

If such a strategy is implemented, the cost of imported EVs, which local automakers have been anxious to avoid, may be drastically reduced. Beyond Tesla, it may also provide access to the third-largest auto market in the world, where EV sales are still less than 2% of all auto sales but are rising quickly.

According to a third source, Tesla may be able to sell all of its models in India rather than just the brand-new vehicles it plans to manufacture there because of the cheaper import duties.

The benchmark auto index had intra-day losses of 1.1% as shares of Tata Motors, India's largest electric vehicle maker, plunged over 3% and those of competitor Mahindra and Mahindra, fell over 2% in response to the Reuters article. As any reduction in tariffs on imported EVs might upset local businesses like Tata and Mahindra who are investing to produce electric cars domestically, the Indian source added, New Delhi would proceed cautiously in assessing the policy suggestion. "Even if the government is anxious to buy Tesla, there will be a careful assessment procedure. The impact on homegrown athletes is the cause of this,” the source said.

Similar actions have been taken by other nations to encourage EV production commitments. To entice Chinese players and Tesla, Indonesia, for instance, has offered to decrease import duties from 50% to zero for EV producers contemplating investments.

By attempting to get the 100% EV import tariff reduced in 2021, Tesla made its first attempt to join the Indian market. When officials made clear that Tesla would need to first commit to local manufacture, last year's negotiations between the business and the Indian government came to an end.

More recently, Tesla has informed Indian officials that it is eager to establish local manufacturing and produce a new EV for the Indian market as well as export that costs approximately $24,000, or around 25% less than its current entry model.

Rohan Patel, a senior executive at Tesla responsible for business development and public policy, recently had private meetings with important figures. Prime Minister Narendra Modi, who met with CEO Elon Musk in June, has been closely monitoring developments, according to Reuters.

According to the sources, Tesla promoted a reduced import tax plan that was conditional on a production commitment even though Indian officials made it clear that there would be no special benefits for the company to enter the market. According to one of the sources, Tesla informed Indian officials that a possible India facility may be fully operational by 2030.

Tesla currently has plants in Berlin and Shanghai, the latter of which is its largest plant worldwide. Musk is constructing a new facility in Mexico that will focus on a new mass-market EV platform that he promises would bring down customer pricing.