India entices Tesla: Slashes EV import duty to 15%

The Indian government aims to attract companies like Tesla to establish manufacturing plants by slashing import duty on electric vehicles (EVs) to 15%, down from the current 70-100% for completely built units (CBUs). This incentive is contingent upon the EV maker setting up a local commercial manufacturing unit within three years.

To qualify for the reduced import duty, EV manufacturers must meet specific pre-conditions, including making a minimum investment of ₹4,150 crore (approximately $500 million), commencing local manufacturing within three years, and achieving at least 25% domestic value addition during that period. Additionally, the manufacturer must attain 50% domestic value addition within five years, according to the Ministry of Commerce and Industry.

The 15% customs duty on CBUs will apply to vehicles with a minimum value of $35,000 (around ₹29 lakh), inclusive of cost, insurance, and freight charges, for a five-year period. The policy permits the import of a maximum of 8,000 vehicles annually, with the EV firm allowed to carry over any unused annual import limit.

Addressing concerns from domestic manufacturers, Rajesh Kumar Singh, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT), stated that the government's intention is not to cannibalize the market but to expand it by attracting new players with advanced technology. He emphasized that the impact on Indian manufacturers would be minimal, as vehicles priced above $35,000 constitute only 1.5% of total passenger vehicle sales.

Singh highlighted the need to accelerate the transition to electric vehicles, noting that while EVs account for 15% of sales in the three-wheeler segment and 10% in two-wheelers, they remain below 2% in four-wheelers. He urged domestic manufacturers to enhance their efforts, emphasizing that the government cannot wait indefinitely.

The government has been engaged in discussions with Tesla for several years to persuade the company to establish a manufacturing facility in India. Last November, Commerce Minister Piyush Goyal announced during a visit to Tesla's manufacturing facility in California that the company would double its imports of auto components from India.

In response to the government's EV policy, car manufacturer Mahindra praised the initiative, stating that it reinforces the momentum of Make in India by requiring bank guarantees, minimum investment commitments, and local value addition, which will accelerate the EV ecosystem in India.