India To Cut EV Tariffs To Secure US Trade Deal

SUMMARY

As part of its ongoing trade deal negotiations with the US, India has reportedly agreed to “significantly” cut tariffs on import of electric vehicles (EVs)

Earlier, reports said that India might altogether remove import tariffs, which would lead to a significant decline in the prices of cars coming from the US

Mulling India entry for some time now, Musk said in the past that India’s high import tariffs make Tesla vehicles unaffordable and that the company won't manufacture in a country where it can't sell and service cars first

As part of its ongoing trade deal negotiations with the US, India has reportedly agreed to “significantly” cut tariffs on import of electric vehicles (EVs).

While domestic players have been opposing any reduction in tariffs, the Centre has decided to go ahead with the cuts as it believes that the domestic auto industry has been protected for “too long”, Reuters reported, citing sources. However, the report didn’t specify the quantum of rate cuts.

This comes as US President Donald Trump is set to announce reciprocal tariffs tonight on all countries.

Earlier, reports said that India might altogether remove import tariffs, which would lead to a significant decline in the prices of cars coming from the US.

Reduction in tariffs will definitely remove the first hindrance for Tesla, which is nearing an entry in India. From finalising locations for its maiden showrooms in the country to hiring employees for its India adventure, the Elon Musk-led company has accelerated its India entry plans.

The billionaire tycoon, who is also a close aide of the president of the US, earlier highlighted India’s high import duties as a concern.

India’s EV Manufacturing Push

Mulling India entry for some time now, Musk said in the past that India’s high import tariffs make Tesla vehicles unaffordable and that the company won’t manufacture in a country where it can’t sell and service cars first.

As of now, India’s import duty on vehicles varies based on CIF (cost, insurance, and freight) value and vehicle type, with 100% customs duty for cars with CIF above $40,000 and 70% for those below. Used cars face a 125% import tax.

However, in a bid to promote domestic manufacturing, the Centre, in March last year, approved a new policy under which EV companies which agree to invest at least INR 4,150 Cr (about $500 Mn) in India to set up manufacturing facilities would have to pay lower duty on imports of EVs. The move was seen as a bid by the Indian government to woo Tesla to the country.

It is pertinent to mention that Tesla’s cheapest variant, Tesla Model 3, comes with a price tag of $42,490 (INR 36.3 Lakh), qualifying for the maximum import duty sanction for a fresh car.

Tesla’s Tryst With India

While Tesla plans to enter India, it remains to be seen if it can compete in the country’s price-sensitive market. Currently, the two highest selling EV cars in India, MG Windsor EV and Tata Nexon EV, cost less than INR 20 Lakh.

Thus, a potential price tag of over INR 70 Lakh in India, inclusive of existing tariffs, can potentially lead Tesla’s bid to penetrate the India market in jeopardy.

The same was also highlighted by brokerage firm CLSA earlier last month, when it observed that the price factor would make it difficult for the EV giant to crack the Indian EV landscape.

Moreover, the brokerage believes that even if Tesla manages to launch a sub-INR 25 Lakh on-road model in India and gain market share, it would still not have any significant impact on incumbents like Maruti Suzuki, Hyundai or Tata Motors.

Despite the sombre predictions on Tesla’s India entry, domestic automakers are pushing the government to delay any cut on EV tariffs at least until 2029, and then take a phased approach in reducing the duties.