India Slashes EV Import Taxes By 85 Percent; Makes Way For Tesla Entry (image-X/Tesla)
The Indian government has announced a significant reduction of up to 85 percent in import taxes on a specified number of EVs. This new policy, unveiled recently, is part of a broader initiative to stimulate investments in the electric vehicle (EV) sector.
The revised taxation scheme is expected to pave the way for the entry of renowned companies like Tesla, led by tech mogul Elon Musk. Known for its cutting-edge electric cars, Tesla has been eyeing the Indian market for some time, with talks of establishing a manufacturing plant in Gujarat gaining momentum.
Elon Musk”s discussions with the government have been regarding tax breaks. While Musk expressed interest in India as early as 2019, he highlighted the challenges of high import duties, which have rendered Tesla cars relatively expensive in the Indian market. The cheapest model was priced around Rs 70 lakh each, making the Tesla cars “unaffordable” for many.
Under the newly announced policy, EV companies must invest a minimum of Rs 4,150 crore and establish production facilities within three years, with a target of achieving 50 percent domestic value addition (DVA) within five years. This includes localization of 25 percent by the third year and 50 percent by the fifth year.
Companies meeting these criteria can import a maximum of 8,000 EVs annually for five years at a reduced import duty of 15 percent. This reduced duty is capped at the company”s investment or Rs 6,484 crore, whichever is lower. It applies exclusively to completely knockdown units (CKD) that require assembly in India.
The Indian government has urged Tesla to avoid selling cars manufactured in China in India. Instead, the government asked the company to set up domestic production plants. Despite initial resistance to Musk”s calls for tax concessions, a Bloomberg report in November indicated that Delhi was crafting a policy to reduce EV import duties on the condition that manufacturers commit to local production.
Presently, India imposes hefty taxes ranging from 70 to 100 percent on imported cars based on their value, making imported EVs considerably more expensive.
While Tesla stands to benefit significantly from these tax revisions, other EV manufacturers, like Vietnam’s VinFast, have also shown interest in reduced import duties to enter the Indian market. VinFast has committed to an investment of Rs 16,577 crore in collaboration with the Tamil Nadu government. The EV firm will invest Rs 4,144 crore in the first five years.
Local EV giants Mahindra and Tata have raised concerns about these tax cuts, calling for measures that prioritise and boost domestic manufacturing capabilities to strengthen the Indian automotive industry. Although EVs constituted merely two percent of India”s total car sales last year, the Indian government aims to increase this to 30 percent by 2030.
