New Delhi, August 26, 2023 – The Indian government is reportedly working on a groundbreaking electric vehicle (EV) policy (India’s New EV Policy) that could have significant implications for the automobile industry. According to sources with direct knowledge of the matter, the policy aims to slash import taxes for automakers that commit to local manufacturing. This development comes after a proposal made by electric car giant Tesla (TSLA.O), which is contemplating its entry into the Indian market.
The proposed policy, if enacted, could allow automakers to import fully-built EVs into India at a reduced tax rate, potentially as low as 15%. Presently, the import taxes stand at 100% for vehicles priced above $40,000 and 70% for others. This could result in a substantial reduction in the cost of imported EVs, a move that local car manufacturers have been cautious about.
A senior Indian government official shared, “There is an understanding with Tesla’s proposal, and the government is showing interest.” However, both India’s commerce ministry, responsible for developing the policy, and Tesla have refrained from providing official comments on the matter.
Notably, Tesla’s popular Model Y, for instance, has a starting price of $47,740 in the United States before tax credits. The potential reduction in import taxes could significantly bolster Tesla’s prospects in the Indian market, allowing the company to offer its entire range of models rather than just the proposed locally manufactured vehicle.
Finance Minister Nirmala Sitharaman responded to inquiries about the policy by stating, “There is no proposal in front of me” regarding the reduction of import duties on electric vehicles. This suggests that the policy is still undergoing deliberation and might evolve before its final implementation.
If such a policy is enacted, it could not only pave the way for Tesla’s full entry into India but also entice other global automakers to explore the country’s burgeoning EV market. At present, EV sales account for less than 2% of total car sales in India, but the sector is experiencing rapid growth.
However, the potential policy change has already stirred some reactions in the market. Shares of Tata Motors (TAMO.NS), India’s leading electric car manufacturer, dropped by nearly 3%, and Mahindra and Mahindra (MAHM.NS) fell by over 2%, causing the benchmark auto index to experience a 1.1% intraday low.
Observers note that India’s cautious approach to the policy is reflective of concerns about disrupting the market and unsettling domestic players such as Tata and Mahindra, which have invested in local EV production. The Indian official mentioned, “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.”
As the policy remains in the early stages of deliberation, the final tax rate and conditions could undergo adjustments. Similar strategies have been adopted in other countries, like Indonesia, to encourage EV manufacturing investments.
Tesla’s attempts to penetrate the Indian market have faced challenges in the past. In 2021, the company pushed for lower import taxes, but talks stalled when the Indian government insisted on a commitment to local manufacturing. In more recent developments, Tesla has expressed interest in setting up a local factory to produce a new EV model priced around $24,000, aimed at both the Indian market and exports.
High-level interactions between Tesla’s representatives, such as senior public policy and business development executive Rohan Patel, and Indian officials have been ongoing. Prime Minister Narendra Modi’s involvement, including talks with CEO Elon Musk earlier this year, underscores the significance of this potential policy change.
While no special incentives are expected for Tesla’s market entry, the proposal of reduced import taxes, contingent on a manufacturing commitment, appears to have been presented by Tesla as a mutually beneficial solution to both sides.
Tesla currently operates manufacturing plants in Shanghai and Berlin, alongside a forthcoming plant in Mexico focused on a new mass-market EV platform.
As India moves cautiously toward this transformative policy shift, the global automotive industry watches closely, awaiting the potential impact on the competitive landscape and the growth of electric mobility in the world’s third-largest car market.