India Paves Way For Tesla As Govt Reduces Import Tariffs Linked to $500-Mn Investment In EV Sector

Reports from last July indicated that Tesla had proposed constructing a factory but sought a reduction in import taxes, which CEO Elon Musk highlighted as some of the world's highest

The government announced on Friday its decision to reduce import taxes on specific electric vehicles for companies undertaking a minimum investment of $500 million in manufacturing facilities within three years, potentially paving the way for Tesla's entry into the market. This policy marks a significant victory for Tesla, aligning with the company's advocacy efforts in New Delhi. Reports from last July indicated that Tesla had proposed constructing a factory but sought a reduction in import taxes, which CEO Elon Musk highlighted as some of the world's highest.

Despite longstanding efforts by Musk to penetrate the Indian market, New Delhi remained hesitant without a commitment to local manufacturing. Tesla representatives have made numerous visits to India in recent months, including a meeting between Musk and Prime Minister Narendra Modi last year.

Companies meeting the investment and manufacturing criteria will enjoy a reduced import tax rate of 15 per cent on electric vehicles priced at $35,000 and above. Currently, India imposes taxes ranging from 70 per cent to 100 per cent on imported cars and EVs based on their value.

According to Tesla's website, the starting price for its cheapest vehicle, the Model 3, is $38,990 in New York. The company did not immediately respond to requests for comment via email.

Commerce Minister Piyush Goyal, speaking at a press briefing following the policy announcement, invited global companies to invest in India, expressing confidence in India's potential to become a leading hub for EV manufacturing, thereby generating employment opportunities and improving trade.

Goyal said the policy's benefits for consumers, who will gain access to EVs at more affordable prices, further aligning with the government's objective of reducing oil imports and foreign exchange outflows.

India's EV market, while currently small, is expanding, with Tata Motors dominating sales. Electric vehicle sales accounted for approximately 2 per cent of total car sales in India in 2023, with the government aiming to raise this figure to 30 per cent by 2030.

This new policy presents an opportunity for global automakers to tap into the world's third-largest car market at a time when EV sales growth is slowing globally, necessitating exploration of new markets to sustain growth.

Vietnamese EV manufacturer VinFast has announced plans to invest $2 billion in India and has commenced construction of a local factory in the southern state of Tamil Nadu. VinFast also sought a reduction in import duties on EVs for a two-year period to familiarise customers with its products until its local plant becomes operational.

Despite lobbying efforts from domestic players like Tata Motors and Mahindra & Mahindra, which expressed concerns about the potential impact on the domestic industry and its investors, India has been working on this policy for several months.

The objective of the new policy, as stated by the commerce ministry, is to bolster the EV ecosystem by fostering healthy competition among EV manufacturers, leading to increased production volumes, economies of scale, and lower production costs.

This policy shift is expected to attract new carmakers, suppliers, and technologies to the Indian auto market, enhancing the overall EV ecosystem and providing Indian consumers with a wider range of global technologies and products.

Effective immediately, the new policy allows EV imports at a reduced tax rate for a maximum of five years, capped at 8,000 units annually. The government's foregone duty on imported EVs will be limited to the company's investment or approximately $800 million, whichever is lower, with the investment commitment requiring a bank guarantee for compliance enforcement.

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