New Delhi: India is actively developing a revised electric vehicle (EV) policy that could significantly decrease import taxes for car manufacturers willing to engage in local production. This move comes in response to a proposal put forth by Tesla, which is evaluating entry into the Indian market, according to sources familiar with the matter.
Potential Policy Details
The proposed policy would potentially enable automakers to import fully-assembled EVs into India with a reduced tax rate of as low as 15%. This would mark a significant decrease from the existing 100% tax applied to vehicles exceeding $40,000 in value, as well as the 70% tax applied to others.
Tesla’s Involvement
Tesla’s widely popular Model Y, for instance, initiates at $47,740 in the United States before accounting for tax credits. A senior government official said that there is an understanding with Tesla’s proposal, and the government is showing interest.
Impact and Potential Outcomes
Should this policy come to fruition, it could lead to a substantial reduction in the cost of imported EVs, a scenario that local car manufacturers have been cautious to address. Additionally, it might offer global automakers, not limited to Tesla, access to India’s auto market – the world’s third-largest – where EV sales account for less than 2% of total vehicle sales but are rapidly expanding.
Enabling Tesla’s Full Range
Lower import taxes could serve as a catalyst for Tesla to introduce its entire range of models in India, rather than solely the new car it intends to produce locally, according to sources.
Parallel Examples and Industry Response
Similar strategies have been employed by other nations to encourage commitments to EV manufacturing. For instance, Indonesia has proposed reducing import duties from 50% to zero for EV manufacturers making investments, a measure aimed at attracting Chinese players and Tesla.
Ongoing Deliberations and Future Prospects
The concerned ministries and Tesla have not provided comments at this time. The policy remains in the initial stages of discussion, and the eventual tax rate might undergo changes before finalization, as per sources.
Tesla’s Journey in India
Tesla initially endeavored to enter the Indian market in 2021 by lobbying for a reduction in the 100% import tax imposed on EVs. Subsequent negotiations between Tesla and the Indian government broke down last year after officials conveyed the necessity for the company to first commit to local manufacturing.
Recent Developments
In recent times, Tesla has expressed its interest in establishing a local factory in India to produce a new EV model with a target price of approximately $24,000. This price point is roughly 25% cheaper than its current entry-level offering, designed to cater to both the Indian market and international export.
Implications and Caution
While Tesla operates major factories in Shanghai and Berlin, with a new facility underway in Mexico, discussions for an Indian presence are ongoing. High-level Tesla executives, including Rohan Patel, Senior Public Policy and Business Development Executive, have engaged with Indian officials in private meetings. Prime Minister Narendra Modi’s interactions with CEO Elon Musk have been closely tracked, and the potential for a Tesla factory in India operating at full capacity by 2030 has been discussed.
Balancing Act
India intends to approach this policy proposal cautiously, given the potential market disruption that could arise from reduced taxes on imported EVs. This move could have repercussions on local players such as Tata Motors (TAMO.NS) and Mahindra and Mahindra (MAHM.NS), who are making significant investments in domestic EV manufacturing. The intricate interplay of interests makes this policy’s progression through various deliberations a careful and thorough process.