New EV Policy: Elon Musk’s Tesla may soon enter India as import taxes slashed for electric vehicles

• The government has announced a new scheme aimed at increasing investment in the EV market.
• The scheme is aimed at increasing domestic EV manufacturing by offering a short-term reduction in import duty.
• This is expected to pave the way for Elon Musk’s Tesla in India.

In what may come as a big boost to Tesla’s plans to enter India, the Indian government has announced a new scheme aimed at boosting domestic manufacturing of electric vehicles.

The Indian government aims to achieve the dual goal of promoting less-polluting EVs as well as ensuring ‘make-in-India’ through the upcoming policy changes. The lower import taxes on certain electric vehicles are contingent on companies committing an investment of at least $500 million in setting up manufacturing facilities within three years.

Here’s what the new policy entails

As part of this policy, companies will be able to import a limited number of electric vehicles in India. These companies will have to invest a minimum of $500 million to establish local manufacturing facilities within three years. Additionally, at least 25% of the components will have to be sourced domestically within three years and at least 50% within five years.

Companies that follow this will be allowed to import 8,000 completely built-up (CBU) electric cars per year at an import duty of 15% on cars costing above $35,000 (approx. ₹28.99 lakh).

At present, India levies a tax of 70% to 100% on imported cars, based on their value. This means that the import duty has been reduced by up to 85% for companies under this scheme.

The investment commitment made by companies will be backed by a bank guarantee which will be invoked if the company fails to follow the policy guidelines.

Would the new policy pave the way for Tesla’s entry?

Many industry experts believe that the new policy could pave the way for the entry of Tesla into the country. Musk has been at loggerheads with the India government over the imposition of import duties on electric vehicles.

Four models of Tesla, including the Tesla Model 3 and Model Y were reportedly approved in India in 2021 but a 2022 report revealed that the company’s India debut was put on hold as Musk was not able to obtain lower tariffs for the company.

It’s not just Tesla, other electric vehicle makers will also benefit from this policy. Vietnamese EV maker VinFast recently announced its plans to invest $2 billion in India and has started constructing its first factory in Tamil Nadu.

Impact on existing companies

The move could come as a hit to companies like Tata Motors and Mahindra and Mahindra, which have been reportedly lobbying officials to not lower import taxes on electric vehicles to protect the domestic industry.

Tata Motors is India’s biggest electric car maker and enjoys a market share of over 70%. It’s not just these companies, other existing EV makers are also expected to be impacted by Tesla’s entry.

SEE ALSO:

Retail auto sales grow by 13% in February, but elevated inventory levels a concern

BYD Seal electric sedan launched in India starting at ₹41 lakh

Electric two-wheeler sales grow by 24% in February 2024, Ola Electric leads with over 40% market share