India has implemented a 100% import tax on cars with a cost, insurance, and freight value exceeding USD 40,000 (approximately INR 33 lakh) and a 60% tax on those below that threshold. Tesla is prepared to invest up to USD 2 billion in India if the government agrees to lower the import duty on electric cars to 15% during the initial two years of operations.
The US electric automaker Tesla may soon establish its presence in India, as the government is nearing the finalization of a policy that would offer concessional import duties on electric cars priced above INR 30 lakh (approximately USD 36,000) for a period of 2-3 years.
The reduced import duties are expected to be granted in exchange for bank guarantees from Tesla for a proposed investment to construct an electric vehicle factory in India, according to sources familiar with the matter.
Currently, India imposes a 100% import duty on cars with a cost, insurance, and freight value exceeding USD 40,000 (about INR 33 lakh) and 60% for those below that threshold. Tesla has expressed its willingness to invest up to USD 2 billion if the Indian government offers a reduced import duty of 15% on imported electric cars in the first two years of operations. The government is eager for foreign automakers to accelerate their plans for local manufacturing, which would boost employment generation and reduce the prices of electric vehicles through localization.
The government is considering temporarily reducing import duties based on bank guarantees. The exact amount of the bank guarantee has not been determined, but the idea is that this will ensure timely investments and the establishment of local factories by companies. Bank guarantees can be encashed if there is non-compliance with specified investment timelines.
In light of the potential relaxed import duties for Tesla, Indian automakers are adopting a cautious wait-and-see approach before taking any action.
A senior industry executive, who wished to remain anonymous, mentioned that while the industry has not formally voiced any objections to the government, several carmakers are concerned that a reduction in import duty would give an unfair advantage to the American carmaker, which has yet to finalize its investment plan.
Last month, Mahindra & Mahindra (M&M) Managing Director Anish Shah stated that his company had urged government officials to encourage global EV makers to invest in India. He emphasized the importance of creating a level playing field and ensuring that India becomes a hub for manufacturing rather than just an importer of products. Shah made these remarks at the World Economic Forum in Davos without specifically mentioning Tesla.
Indian auto giants like Tata Motors and M&M are already producing electric vehicles locally.
