Wooing Tesla? Centre Lowers Import Duty On EVs To Boost Investments In India

The Centre on Friday (March 15) approved a new policy under which electric vehicle (EV) companies would have to pay lower duty on imports of EVs if they agree to set up manufacturing facilities in the country.

The policy, aimed at promoting EV manufacturing in the country, also addresses a long-standing demand of Elon Musk-led electric car maker Tesla.

Under the scheme, import duty on vehicles with cost, insurance and freight (CIF) value of $35,000 or above will be reduced to 15% for five years for companies which agree to invest at least INR 4,150 Cr (about $500 Mn) in India to set up manufacturing facilities.

“This will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale, lower cost of production, reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment,” the Ministry of Heavy Industries said in a statement.

Currently, cars with CIF value of over $40,000 are charged a 100% customs duty, while those under $40,000 are charged 60% import duty. 

The companies setting up manufacturing plants in India would have to start commercial production of EVs within three years and reach 50% domestic value addition within five years.

While the import duties have been slashed, not more than 8,000 EVs per year would be permissible for import under this scheme. If less than 8,000 EVs are imported in a year, a carryover of the remainder would be permitted. 

“The total number of EVs allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of INR 6,484 Cr (equal to incentive under PLI scheme),” the statement added.

Boost For Tesla

The new scheme is expected to clear the path for Tesla’s entry in the country. Musk criticised the Indian government in 2021 over high import duties and said Tesla would not manufacture in any country where it was not allowed to sell and service cars first.

However, the company later took a U-turn after Musk’s meeting with Prime Minister Narendra Modi last year. The company was said to be looking to make a $2 Bn investment in India for setting up a local factory if the government cuts import duty to 15% on its vehicles during the first two years. 

The company was said to be confident of setting up a factory in India within three years and producing a low-cost EV priced at around $24,000 (INR 19.87 Lakh). 

Later, it was also reported that the US-based EV maker was open to committing a nearly $30 Bn in direct and indirect investments in India over the course of the next five years to establish its manufacturing facility, develop a battery ecosystem, and ancillary industries.