Indian officials are considering slashing the import tax on fully-built electric vehicles (EVs) from 100% to 15% for carmakers who agree to commit to some local manufacturing, people with direct knowledge said.
The tax cat consideration follows a proposal by Tesla which is considering entering the domestic Indian market and setting up a local factory, sources, including a senior Indian government official, said.
“There is an understanding with Tesla’s proposal and government is showing interest,” said the official, who is familiar with the issue.
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If approved the tax cut will be part of a new EV policy and amount to a drastic reduction in the cost of imported EVs that local carmakers have been keen to avoid.
India currently imposes a 100% import tax on cars which cost above $40,000 and 70% for the rest. Tesla’s best-selling Model Y starts at $47,740 in the US before tax credits.
The move could also open the door for global automakers, beyond Tesla, to tap the world’s third-largest car market where sales of EVs are less than 2% of total car sales, but growing rapidly.
The lower import taxes could help Tesla sell its full range of models in India, and not just the new car it wants to make locally, another source said.
Asked about the move, Finance Minister Nirmala Sitharaman told reporters “there is no proposal in front of me” to reduce import duties on electric vehicles.
Local manufacturers worried
New Delhi is going to move slowly in considering the policy proposal as any lowering of taxes on imported EVs could disrupt the market and upset local players like Tata and Mahindra that are investing to build electric cars at home, the Indian official said.
“This is going to go through a lot of deliberations even though government is keen on getting Tesla. That’s because of the impact on domestic players,” said the official.
The policy is still in the initial stages of deliberation and the final tax rate could change, two of the sources said.
Shares of Tata Motors, India’s largest electric car manufacturer, fell nearly 3% on Friday on the possibility of the tax cut. While rival Mahindra and Mahindra dropped over 2%, in line with benchmark auto index which closed at an intra-day low with losses of 1.1%.
Tesla’s India factory, new car plans
Other countries have taken similar measures to spur EV manufacturing commitments. Indonesia, for example, has offered to reduce import duties from 50% to zero for EV makers planning investments, a move seen aimed at attracting Chinese players and Tesla.
Tesla first tried to enter India in 2021 by pushing officials to lower the 100% import tax for EVs. Last year, the talks between Tesla and the Indian government collapsed when officials conveyed the company would have to first commit to local manufacturing.
More recently, Tesla has told Indian officials it is keen to set up a local factory and make a new EV priced around $24,000, roughly 25% cheaper than its current entry model, for both the Indian market and export.
Tesla’s senior public policy and business development executive Rohan Patel has in recent weeks met top officials privately. Prime Minister Narendra Modi, who held talks with CEO Elon Musk in June, has also been tracking progress closely.
Indian officials conveyed there will be no special incentives for Tesla’s market entry, and the proposal for a low import tax, conditional on a manufacturing commitment, was touted by Tesla to keep both sides happy, the sources said.
One of the sources said Tesla told Indian officials a potential India factory could operate at full capacity by 2030.
- Reuters, with additional editing by Vishakha Saxena
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