India is currently assessing a proposal from Tesla to decrease tariffs on imported electric vehicles. This consideration comes as Tesla, led by Elon Musk, is contemplating establishing a manufacturing facility in India. Tesla’s request to the Indian government involves a reduction in the current customs duty, which stands at 70 percent for cars priced below $40,000 and 100 percent for those above $40,000.
Government officials in India with knowledge of these discussions have indicated that Tesla has sought an initial tariff reduction as a prerequisite for setting up a plant in the country. The proposed tariff reduction would not be exclusive to Tesla but would be applicable to all electric vehicle (EV) manufacturers. The suggested tariff could be reduced to 15 percent for EVs across all price ranges, although this policy is yet to receive final approval within the Indian government.
Indian officials emphasize their intention to formulate a policy that benefits the country’s interests without favoring any single company. The proposed EV scheme is intended to be open to all manufacturers who meet certain requirements.
The discussions between Tesla and the Indian government have been ongoing, with Tesla executives meeting Indian officials several times over the past year. In one notable interaction, Prime Minister Narendra Modi, during his state visit to the US, met Elon Musk in New York and encouraged him to consider India as a potential manufacturing base.
India’s Commerce Minister, Piyush Goyal, is slated to visit San Francisco for meetings related to the Indo-Pacific Economic Framework for Prosperity and the Asia-Pacific Economic Cooperation forum. During this visit, there is a possibility of Goyal meeting with Musk.
For Tesla, venturing into India represents a significant but challenging opportunity. India’s EV market is nascent, primarily focused on two-wheel vehicles, and any new automobile entrant would need competitive pricing to succeed in this large and developing market. Tesla has proposed manufacturing a vehicle under $30,000 in India, which could be sold domestically and potentially exported.
Tesla has not yet commented on these discussions.
The establishment of a factory in India would mark Tesla’s sixth vehicle plant, expanding into a major car market predominantly featuring lower-cost vehicles. Musk has previously hinted at a new, more affordable model than Tesla’s $39,000 Model 3, tentatively named Model 2.
This move is part of Tesla’s global factory expansion, aiming to reach an informal target of producing 20 million cars annually by the end of the decade. This expansion would potentially position Tesla ahead of current industry leaders Toyota and Volkswagen in terms of production volume.
India’s initiative to potentially lower EV tariffs is seen as an effort to reduce the gap with China in developing EV and semiconductor technologies. High tariffs on motor vehicles in India, aimed at promoting local production, have been a longstanding issue for foreign car manufacturers. The UK, in its free trade agreement talks with India, has also been pressing for a reduction in car tariffs.
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