Amid Talks With Tesla, India Mulls Cutting Import Tax For EVs If OEMs Build Locally

India is reportedly working on a new electric vehicle (EV) policy that would reduce import taxes for foreign automakers who commit to some local manufacturing.

The development reportedly follows a proposal by US automotive giant Tesla, which is considering entering the Indian market after its earlier tussle with the government over import tax-related issues. 

The new EV policy under consideration could allow automakers to import fully-built EVs into India at a reduced tax of 15%. Currently, the import tax is 100% for cars that cost above $40,000 and 70% for the rest, Reuters reported citing sources.

Tesla’s current best-selling Model Y starts at $47,740 in the US, before tax credits.

However, the policy is still in the initial stages of deliberation and the final tax rate could be different.

“There is an understanding with Tesla’s proposal and government is showing interest,” a government official familiar with the matter was quoted as saying.

A source also told the news agency that the lower import taxes could help Tesla sell its entire range of car models in the country, and not only the new car it wants to manufacture locally.

Tesla has been looking to enter the Indian market for years now. However, in 2021, Tesla boss Elon Musk said that though he wanted to launch the cars soon in the country, it was stalled because of the high import duties, which he claimed to be the “highest in the world”.

After a long standoff, Musk and Indian Prime Minister Narendra Modi met in the US in June this year.

“I am confident that Tesla will be in India and will do so as soon as humanly possible,” Musk told the media during the meet.

Tesla is also in talks with the Indian government for setting up a manufacturing plant in India and has reportedly leased an office space in Pune.

It is pertinent to note that a change in the EV tax policy right now could lead to an influx of global EV players entering the slow but steadily growing Indian EV market. Besides, it could also lead to a significant reduction in the cost of imported EVs.

However, this would also mean higher competition for Indian EV players like Tata Motors and Mahindra, who are trying to build the culture of vehicle electrification in the country.

The report cited a source as saying that the Centre is moving slowly on the policy proposal keeping in mind that such a drastic reduction of taxes on imported EVs could disrupt the market. 

“This is going to go through a lot of deliberations even though (the) government is keen on getting Tesla. That’s because of the impact on domestic players,” the official was further quoted as saying. 

It must be noted that the Indian government has been focusing on boosting local manufacturing for EVs and their components in the country for the last few years. In the last year or so, it also penalised several escooter players and reframed the FAME-II subsidy policy on finding over a dozen of them largely importing the parts and not manufacturing them domestically.

Despite FAME-II disruptions, the electric two-wheeler market has grown significantly since 2022. However, electric cars are still less than 2% of the total car sales in the third-largest automotive market in the world.

Currently, international players like MG Motor, Renault SA, Nissan, Volkswagen, and BYD are among the leading players in the electric car market in the country.