Govt Seeks Tesla’s Sourcing And Manufacturing Details Before Entry Into Indian Market

India has asked Tesla Inc. to fasten the local procurement and share manufacturing plans before the carmaker’s demands for lower taxes on electric vehicles are considered.

According to a report by Mint, the ministries of heavy industries and finance sought the details from Tesla in a meeting earlier this month. This comes in the backdrop of reports suggesting that Tesla had written to government think tank Niti Aayog urging it to cut federal taxes on imports of fully assembled electric cars to 40% from the current 100%.  According to another Mint report, the union government is taking steps to promote the use of electric cars by lowering domestic taxes and installing charging stations. 

The departments have also asked Tesla for its thoughts on importing fully built cars versus so-called knocked-down units or partially built vehicles, which attract a lower import levy.

So far, Tesla claims to have procured components worth $100 Mn from India and suggested that the figure would increase following any tax concessions. It has also asked for the 10% social welfare surcharge which is levied on all imported cars and helps fund health and education programs to be scrapped.

At present India imposes 100% import duty on fully imported cars with cost, insurance and freight (CIF) value of more than $40,000 and 60% on cars where CIF value is lower than $40K. The recent discussion on the heavy import tax that the government of India levies on imported EV cars began when Musk was asked again about the India launch for Tesla. “We want to do so, but import duties are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India,” Musk tweeted. 

Tesla which earlier this year announced its entry to India registered itself as Tesla India Motors in Karnataka will have to reconsider its pricing for the Indian market. Tesla’s top-selling Model 3 costs $37,990 – $54,990 (INR 28 Lakh to INR 40 Lakh) and is expected to be launched in the Indian market for $95,496 (INR 70 Lakhs). Supporting Musk, last week, Hyundai Motor India’s managing director and CEO SS Kim said that a cut in duty rate by the government on imported electric vehicles would help OEMs to create some market demand and reach some scale.

Currently, the EV sector in India is still in a nascent stage, particularly in the four-wheeler segment. The Indian government has set a target of 30% electric vehicles on roads by 2030 and at present around 32% of states and UTs in the country have formulated policies regarding electric vehicle adoption.

According to the EV report from Inc42 Plus, Indian EV startups raised $601 Mn between 2014 and 2019. Electric vehicles are projected to have a market share of 70% and 20% in the commercial vehicles and two wheeler segments by 2030.  Additionally, the share of these vehicles in the market is projected to be $20 Bn.