The auto industry is divided on the question of reducing import taxes on EVs after Tesla appealed for a reduction. The Centre is investigating slashing import duties on EVs to as low as 40 percent, two government officials told Reuters, despite reports that they would not be changing the existing tax system.
Currently, vehicles imported in India that cost less than USD 40,000 (around 30 lakh) are subject to a 60 percent tax, while those that cost more are subject to a 100 percent tax, irrespective of their fuel type.
Tesla had requested a reduction of the customs duty on electric vehicles for India to 40 percent in a letter to the Indian authorities. Officials have told Reuters the Indian government is considering reducing import duties for cars below USD 40,000 (around 30 lakh) from 60 to 40 percent, and from 100 to 60 percent for cars above USD 40,000.
The reduction of duties has not been finalized yet, but negotiations continue, an official told reporters. In spite of the fact that India ranks fifth in the world in terms of car sales, most of the cars sold there sell for less than USD 20,000 (around 15 lakh). According to industry estimates, mass-market and luxury EV sales form only a small fraction of global sales. Several automakers were divided over whether Tesla’s plan would contradict India’s domestic manufacturing initiatives by reducing import duties.
It has been reported that the government will consider slashing import duties if companies like Tesla support the domestic economy, either by manufacturing locally or at least provide a timeline for when they will begin doing so. The official noted that reducing the import duties was not a problem in the country because not many EVs are imported. However, the official stressed that there must be a balanced approach to concern for the domestic players.
A successful import will affect Tesla’s plans for local manufacturing in India, the company stated. A government official noted that since the duty cut will only apply to EVs and not to other categories, domestic producers of gasoline cars need not be concerned about the duty reduction. Previously, luxury automakers in India like Mercedes-Benz and Audi had also lobbied for a reduction in taxes on imported vehicles. They did not succeed primarily due to opposition from rivals with domestic operations.
The officials said that the proposal is currently being discussed by India’s finance and commerce ministries, federal think tank NITI Aayog and a final call will be taken after all stakeholders are consulted. Reuters spoke with another source who said the government acknowledges that Tesla’s entry will help the market penetrate EVs, which have lagged behind other major markets when it comes to EV sales. According to this source, the government is thinking through how to proceed and wants to ensure it is eligible to benefit, regardless of the fact Tesla will only be able to purchase parts domestically.
India’s auto industry has been polarized by recent events. Mercedes-Benz and Hyundai India, both of whom import EVs into India, have backed Tesla’s stance. Nonetheless, some companies, like Ola Electric, which will launch locally-made electric scooters in India shortly, and Tata Motors, which locally produces affordable electric cars, are in favour of strengthening domestic manufacturing.
Tesla has set up a subsidiary in India — Tesla India Motors and Energy Pvt. Limited. Earlier this year, the company was spotted testing the Model 3 on our roads. The electric car will be imported in full and priced at approximately Rs 60 lakh (ex-showroom).