India will cut import taxes on some electric vehicles for companies that pledge to invest at least $500 million and set up a local manufacturing facility within three years, a policy change that could potentially boost Tesla’s plans to enter the market South Asia.
The companies must invest at least $500 million in the country and will have three years to set up local production of electric vehicles with at least 25 percent of components coming from the domestic market, according to a government press release on Friday. Companies that meet these requirements will be allowed to import 8,000 EVs per year at a reduced import duty of 15% for cars costing $35,000 or more. India currently levies a tax of 70% to 100% on imported cars depending on their value.
The policy change is likely to pave the way for Tesla’s entry into India, as the Elon Musk-led company has been in talks with the government to reduce import duties on its electric cars for years. The move is also in line with India’s aim to boost the adoption of electric vehicles and reduce its dependence on oil imports, with the country aiming to achieve 30% electric car sales by 2030.
The new policy “will provide Indian consumers with access to the latest technology, strengthen the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high production volume, economies of scale, lower production costs, reduction in crude oil imports, lower trade deficit, reduction in air pollution, especially in cities, and will have a positive impact on health and the environment,” the Ministry of Heavy Industries said in a statement.
India’s Ministry of Commerce and Industry said separately that companies investing at least $800 million in the country will be allowed to import up to 40,000 EVs, with a maximum of 8,000 units per year.
Tesla has been looking to enter India for several years. The automaker initially wanted to set up a local footprint in 2021. Musk later resisted the plan to launch in India until New Delhi allowed the company to sell and service imported cars in the country.
Tesla is expected to enter India by importing its electric vehicles from Shanghai, China, although it will relocate its manufacturing and battery plant in the next two years, BofA analysts wrote in a note late last year. The company is also expected to launch a sub-$25,000 model — more affordable than its cheapest model in China (where Tesla sells cars priced between $32,000-$33,000) — to cater to its Indian customers and take on incumbents, including Tata Motors and Hyundai.
“Net, Tesla would be relevant for top 20-25% of PV mkt initially and assuming 30-40% EV shift here plus dominant share would yield 100-200K vols. As such, it will likely still be a long way for Tesla to gather scale volumes at this price point in India for its planned 500k annual capacity,” BofA analysts wrote.
Unlike the US and other major auto markets, India’s average car price is less than $10,000 and 70% of cars sold in the country are under $15,000. Therefore, Tesla may use India as a manufacturing base to export its vehicles to Southeast Asia, analysts estimate.
In September, India’s Commerce Minister Piyush Goyal said Tesla aimed to nearly double its supply of auto parts from India to $1.7-1.9 billion in 2023 from $1 billion in 2022.
Along with Tesla, Vietnamese electric car maker VinFast is eyeing India as its new production hub. Earlier this year, VinFast, which has been struggling in the US and Canada, announced plans to invest $2 billion in the country, with $500 million earmarked for setting up a 400-acre integrated facility in the southern state of Tamil Nadu.
Lotus Cars, the sports car maker owned by China’s Geely, also entered India last year by partnering with a local importer and launching its electric SUV Eletre.
Although the Indian government intends to attract foreign electric vehicle players by introducing friendlier import tax policy, the country is primarily a two-wheeler market. It also has local automakers Tata Motors and Mahindra & Mahindra that often try to resist global players from expanding in the country.
