India reduces EV import taxes in support of Tesla’s entry-level plans

India will reduce import duties on certain electric vehicles for companies that invest at least $500 million and commit to setting up local manufacturing facilities within three years, but jeopardizes Tesla’s plans to enter the South Asian market. Possible policy changes could provide a boost.

Companies have three years to establish local manufacturing of electric vehicles by investing at least $500 million in the country and sourcing at least 25% of components domestically, according to a government press release on Friday. There must be. Companies that meet these requirements will be allowed to import 8,000 electric vehicles a year, with a 15% reduction in import duties on vehicles valued at $35,000 or more. India currently imposes a tax of 70% to 100% on imported cars, depending on their value.

The policy change is likely to pave the way for Elon Musk’s Tesla, which has been negotiating with the government for years to reduce import duties on electric cars. The move is in line with India’s goals to increase the adoption of electric vehicles and reduce dependence on oil imports, with the country targeting 30% of electric vehicle sales by 2030.

As per the Ministry of Heavy Industries, the new policy “will provide Indian consumers with access to latest technology, boost the Make in India initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale, lower cost of production, reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment.”

The Commerce and Industry Ministry of India said separately that companies investing a minimum of $800 million in the nation will be permitted to import up to 40,000 electric vehicles (EVs), with an annual maximum of 8,000 units.

Tesla has been planning to enter the Indian market for several years. The automaker initially wanted to establish a local presence in 2021. Musk later opposed plans to launch the car in India until New Delhi allowed the company to sell and service imported cars in India.

Tesla is expected to enter India by importing electric cars from Shanghai, China, but BofA analysts said late last year that the company plans to move its manufacturing and battery factories in the coming years. I wrote it in my notes. The company is also looking to serve customers in India and compete with established players such as Tata Motors and Hyundai in China (Tesla sells cars at prices between $32,000 and $33,000). It is estimated that the company will launch a model priced at less than $25,000, which is more affordable than the cheapest model currently available.

“Net net, Tesla would be relevant for top 20-25% of PV mkt initially & assuming 30-40% EV shift here plus dominant share would yield 100-200K vols. Hence, it will likely still be long road for Tesla to garner scale volumes at this price point in India for its planned capacity of 500K pa,” BofA analysts wrote.

Unlike the US and other major car markets, the average car price in India is less than $10,000, and 70% of cars sold in the country cost less than $15,000. Analysts therefore estimate that Tesla may use India as a production base to export its vehicles to Southeast Asia.

India’s Commerce Minister Piyush Goyal said in September that Tesla plans to nearly double its procurement of auto parts from India from $1 billion in 2022 to $1.7 billion to $1.9 billion in 2023.

In addition to Tesla, Vietnamese electric car maker Vinfast is also considering India as a new production base. Earlier this year, VinFast, currently struggling in the U.S. and Canada, announced plans to invest $2 billion in the country, including, among other things, five million dollars to build a 400-acre complex in the southern state of Tamil. Includes $1 billion.

Last year, Lotus Cars, the sports car manufacturer owned by Geely in China, also made an entry into India when it introduced its electric SUV Eletre in collaboration with a regional importer.

Although the Indian government wants to draw in global electric vehicle (EV) companies by lowering import taxes, the nation is predominantly a two-wheeler market. Additionally, it has domestic automakers Mahindra & Mahindra and Tata Motors, which frequently make an effort to stop foreign companies from growing in the nation.