India’s EV Policy: No Special Treatment for Tesla, Emphasizing Fair Competition

The Indian government’s stance on incentives in the electric vehicle (EV) sector, particularly concerning Tesla, has been a topic of significant discussion. In 2021, Tesla, the U.S.-based electric car maker, requested the Indian government for a reduction in import duties on EVs. Tesla proposed standardizing the tariff on electric cars to 40% irrespective of their customs value. However, cars imported as completely built units (CBUs) in India attract customs duty ranging from 60% to 100%, depending on various factors such as engine size and cost, insurance, and freight (CIF) value above or below USD 40,000​​.

In response to Tesla’s demands, a top government official clarified that India would not provide company or enterprise-specific incentives in the EV sector. The official emphasized that any concessions, if given, would be linked to stringent performance criteria applicable to all entities and companies in the sector. This policy stems from the government’s commitment to maintaining a level playing field for all EV makers and entrants who wish to operate in India​​​​.

Despite these statements, there were reports that India was considering giving customs duty concessions to Tesla for setting up a plant in the country. In 2021, Elon Musk, CEO of Tesla, expressed interest in establishing a manufacturing unit in India but highlighted the high import duties as a significant barrier. He suggested that Tesla might set up a factory in India if it first succeeded with imported vehicles​​.

In a recent development, Tesla showed readiness to invest up to $2 billion in setting up a local factory in India, contingent upon the government approving a lower concessional duty on imported vehicles during the first two years of its operations. Tesla proposed a concessional duty of 15% on its imported vehicles for this period. The company was willing to invest up to $500 million if the government extended a concessional tariff for 12,000 vehicles, potentially increasing to $2 billion if the duty reduction was approved for 30,000 vehicles. However, the Indian government expressed its intention to reduce the number of vehicles imported at a concessional tariff compared to Tesla’s proposal, considering restricting it to 10% of the total EVs sold in India during the financial year​​.

Furthermore, Tesla has agreed to localize up to 20% of the value of made-in-India cars in two years, increasing to 40% in four years. The government also hinted that it may require a bank guarantee linked to the capital commitment to recover loss on account of import duty if Tesla does not deploy funds as per its commitment​​.

Tesla plans to introduce three vehicles in India—Model 3, Model Y, and a new hatchback—with projected Indian market prices contingent on receiving concessional import duty. The investment discussions involve multiple government departments and are subject to change. However, the central government has reiterated that any incentives for local production of EVs will be uniform for both foreign and domestic players, signaling no preference for company-specific exemptions​​.



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