Government’s New EV Policy Boosts Tesla’s India Plans with Import Tax Cut

The government has slashed import taxes by up to 85% on a specific number of electric vehicles (EVs) in a bid to attract investments from global EV manufacturers. This move is part of a new policy aimed at boosting the entry plans of Tesla, led by Elon Musk, who has shown interest in setting up a manufacturing plant in Gujarat.

Musk and the Indian government have previously discussed tax breaks, with Musk expressing interest in India since 2019 but citing high import duties that make Tesla cars expensive in the country, where the cheapest model sells for around Rs. 70 lakh each.

The government has urged Tesla to refrain from selling cars made in China in India and instead establish manufacturing plants in the country for domestic sales and exports.

While the government had initially resisted Musk’s requests for tax breaks, a recent Bloomberg report indicated that Delhi was working on a policy to reduce EV import duties if manufacturers committed to local production. Under this new policy, EV companies must invest a minimum of Rs. 4,150 crore, establish a production facility within three years, and achieve 50% domestic value addition (DVA) within five years, including 25% localization by the third year and 50% by the fifth year.

Companies meeting these requirements can import up to 8,000 EVs annually for five years at a reduced 15% import duty. This reduced duty is capped at the company’s investment or Rs. 6,484 crore, whichever is lower, and applies only to completely knocked-down (CKD) units that are assembled in India.

Currently, India imposes 70-100% tax on imported cars based on their value.

Tesla is not the only EV manufacturer expected to benefit from this policy. VinFast, a Vietnamese company, has also requested reduced import duties to introduce the market to EVs. VinFast and the Tamil Nadu government are working towards investing Rs. 16,577 crore, with an estimated Rs. 4,144 crore in the first five years.

However, local EV manufacturers Mahindra and Tata are opposed to these tax cuts, advocating for the promotion of local manufacturers to strengthen India’s automotive industry.

Despite EVs accounting for only about 2% of India’s total car sales last year, the government aims to increase this to 30% by 2030 and is implementing various measures to attract manufacturers.