India is developing a policy to reduce EV import taxes to a minimum of 15% for firms pledging some local production. This move could enable Tesla to establish an Indian factory for its planned $24,000 car and import its higher-end models at reduced taxes.
Tata Motors is advocating to Indian authorities to retain the current 100% import taxes on electric vehicles, emphasizing the need to protect the domestic industry and its investors. This comes as the government considers Tesla’s entry into the Indian market.
India, aiming to encourage local EV production and adoption, is facing Tesla’s proposition for a manufacturing plant in India, conditional on reduced import taxes for electric cars. A new policy under development in India aims to slash EV import taxes to a minimum of 15% for companies willing to engage in some local manufacturing. Such a policy would facilitate Tesla’s establishment of a factory in India to produce its anticipated $24,000 car while also enabling the import of its pricier models at lower taxes. This approach marks a shift from Tesla’s unsuccessful attempt last year to persuade India to lower duties.
In discussions with Prime Minister Narendra Modi’s office and various departments, Tata has voiced opposition to this plan. The company argues that its investors made commitments based on the existing tax system favouring local enterprises, as per two sources familiar with the negotiations. Neither Tata nor Modi’s office has commented on these discussions.
Tata is also highlighting the need for more government backing for India’s nascent EV industry. It points out that imported gasoline or diesel vehicles are still subject to up to 100% tax despite the mature state of that industry. One source expressed concern that lower duties would adversely impact the entire domestic sector and dampen the investment environment.
Tata Motors, a leading Indian automaker that ventured into EVs in 2019, attracted a $1 billion investment from TPG and Abu Dhabi’s ADQ in 2021, valuing its EV segment at about $9 billion. There’s concern that reduced duties for international competitors could jeopardize future fundraising efforts. While India’s EV market is relatively small, Tata Motors dominates it, manufacturing 74% of the 72,000 electric cars sold this year. Tesla, facing competition in the U.S., is eyeing India’s vast auto market, where over 3 million cars are sold annually. EVs constitute a small fraction of India’s market, but the government is actively promoting clean vehicles, and the sector is expanding rapidly. Modi has been closely involved in discussions with Tesla since his meeting with CEO Elon Musk in New York in June.
The domestic car industry successfully resisted Tesla’s previous push for reduced Indian taxes, aligning with Tata Motors’ stance that it contradicted the government’s Make-in-India initiative.
Another key player, Mahindra & Mahindra, which secured around $400 million from investments by Singapore’s Temasek and British International Investment, has also expressed concerns about the proposed lower EV tax plan to officials. Mahindra has declined to comment.
The Indian government is addressing local automakers’ worries but remains committed to facilitating foreign players’ entry into the EV market to achieve its goals. Modi’s target is for 30% of annual car sales to be electric by 2030, up from the current 2%, with charging infrastructure still in the early stages.
An official stated that the upcoming policy would aim to allay all concerns, possibly by applying lower import taxes only above a specific price threshold. Currently, the 100% EV import tax applies to cars over $40,000, affecting most Tesla models. Tata’s EV range is priced between $10,400 and $24,000.
The official emphasized the necessity for more manufacturers to establish India as an EV hub, assuring that local players need not fear being overshadowed by Tesla or other entrants.
Amid these discussions, other countries are also engaging with Tesla. Recently, Thailand’s Prime Minister showcased potential locations to Tesla executives, confident in the company’s investment in Thailand.