India is making an earnest effort to entice Tesla, the electric vehicle (EV) giant led by Elon Musk, to set up shop in the country. Government departments are working tirelessly to provide the necessary approvals by January 2024, signalling their commitment to welcoming the American automaker.
PMO Takes Stock of Electric Vehicle Manufacturing
The Prime Minister’s Office (PMO) recently conducted a high-level meeting, with top officials in attendance, to assess the next phase of electric vehicle manufacturing in India. Among the key discussions was Tesla’s investment proposal, a topic that has garnered significant attention.
Fast-Tracking Approvals Tops the Agenda
While the meeting primarily revolved around general policy matters, a clear objective was set to expedite the approval process for Tesla’s proposed investment in the country. This move underscores the government’s enthusiasm to see Tesla establish a presence in India.
Inter-Ministerial Collaboration for Tesla’s Entry
Multiple key ministries, including the ministries of commerce and industry, heavy industry, and electronics and IT, have been actively engaged in discussions about Tesla’s ambitious plans for the Indian market. The genesis of this collaboration can be traced back to a meeting between Tesla CEO Elon Musk and Indian Prime Minister Narendra Modi during the latter’s state visit to the United States in June.
A Special Invitation and Ambitious Plans
Notably, India has extended a special invitation to U.S. President Joe Biden to be the chief guest for the Republic Day celebrations on January 26, an event that could further enhance the prospects of Tesla’s India venture. Senior Tesla executives have already begun conversations with the Indian government, exploring the possibilities of setting up car and battery manufacturing facilities in the country. The EV manufacturer is also keen on establishing its supply chain ecosystem in India.
Resolving Differences and Paving the Way
Government bodies are leaving no stone unturned in their efforts to smooth the path for Tesla’s entry into the Indian market. Ministries and government departments have been tasked with resolving any existing disparities with Tesla, ensuring that the company’s manufacturing plan for India is announced as swiftly as possible.
The Import Duty Conundrum
One of the key challenges in Tesla’s India foray is the import duty structure. Tesla has sought a 40% import duty on fully assembled electric cars, as opposed to the current rate of 60% for vehicles priced below $40,000 and 100% for those above that threshold. India’s customs duty regime currently imposes high duties on all vehicles, irrespective of whether they run on hydrocarbons or electricity, with the aim of promoting local manufacturing.
A Unique Category for Clean Energy Vehicles
Tesla’s insistence on its cars being treated as electric vehicles, rather than luxury cars, has been a point of contention with the Indian government. To address this, officials are considering introducing a new category in the import policy to lower the tax burden on clean energy-driven vehicles. This proposed incentive is not exclusive to Tesla but extends to any entity willing to establish electric vehicle manufacturing units in India.
Previous Challenges and New Initiatives
Tesla had previously abandoned its plans for India due to difficulties in negotiating a reduction in import duties. New Delhi had firmly insisted on a commitment to local manufacturing as a prerequisite for any import duty concessions. The government had also encouraged Tesla to apply for the production-linked incentive scheme, which provides direct subsidies to manufacturers, rather than seeking customs duty reductions.
As India strives to pave the way for Tesla’s entry into its burgeoning electric vehicle market, the government is taking a multipronged approach to expedite approvals and address key challenges, thereby fostering an environment conducive to the automaker’s success in the country.
