Govt Asks Elon Musk’s Tesla To Start Local Sourcing, Manufacturing To Avail Low Tax Benefits

Elon Musk had earlier said that Tesla wants to enter the Indian market through imports but exorbitant import duties prevented it from doing so.

Tug Of War Between Tesla And Indian Govt

The government, meanwhile, is of the view that before it reduces import duties, Tesla should start local manufacturing.

This is in direct opposition to Tesla’s view in which it wants to test the market and gauge demand for its products through imports first.

If it gets an encouraging response, it could then start setting up local production facilities.

Govt Asks Tesla For Reassurance

Now it seems that the government is mulling over softening its stance on lowering import duties as it has asked Tesla to increase local procurement and share detailed manufacturing plans for consideration.

The ministries of heavy industries and finance have sought Tesla’s opinions on the debate of importing fully built cars versus so-called knocked-down units or partially built vehicles.

The latter attracts a lower import levy.

The government said that it is not against reducing import duties on electric vehicles (EVs) since the quantity of imports is low.

However, it needs to be convinced of economic gain in order to also address the concerns of domestic players.

Import Duty Rates “Highest Of Any Major Country”

Tesla had appealed to the transport and industry ministries to cut import duty on EVs to 40% from the going rate of 60-100%, “the highest in the world by far of any large country” as per Musk.

100% import duty is levied on fully imported cars with CIF (Cost, Insurance and Freight) value over $40,000.

60% duty is imposed on cars costing less than $40,000.

The company also asked the government to scrap a 10% social welfare surcharge levied on all car imports which goes towards health and education programs.

Tesla Makes Promises On One Condition

Tesla says that it has procured  $100 million worth of components from India and said that the figure would increase if it is given tax concessions.

Tesla also made promises of “significant ” direct investments in sales, service, and charging infrastructure along with “broader investments in manufacturing.”

The condition is that it be allowed entry into the world’s second-most populous nation, and Asia’s third largest economy.

The State Of EVs In India And How Tesla Can Help

India is also the fifth-largest car market in the world with about 3 million annual sales with the majority of units sold costing below USD 20,000 (around 15 lakh). 

Despite these impressive figures, when it comes to EVs there is barely any penetration in the market.

In India, EVs account for just below 1% of annual car sales.

This is in contrast with 5% in China.

Tesla’s entry could increase the figure and put India on par with other major auto markets when it comes to EV sales.

Tesla To Launch Rs 60-Lakh Model 3 This Year

As of now, Tesla is planning on launching the Model 3 this year, which had already been spied on test drives.

As it is a full import, it will be priced around Rs 60 lakh.

Recap: Indian Govt Won’t Reduce Import Duty For Electric Cars; Big Blow For Elon Musk?