Battle brewing between Musk, Indian auto sector over duty concessions for EVs

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Battle brewing between Musk, Indian auto sector over duty concessions for EVs
Tesla Inc CEO Elon Musk walks next to a screen showing an image of Tesla Model 3 car during an opening ceremony for Tesla China-made Model Y program in Shanghai, China. The skirmishes with Tesla notwithstanding, the GoI is aggressive about promoting India as a global EV hub.Courtesy: Reuters

Tesla seeks duty concessions on car imports, and this has drawn a quick retort from the domestic auto industry. The GoI could consider some relief but only if Tesla sets up a factory in the country and that too for the entire industry. An interesting dispute lies ahead.

There’s a battle brewing in the Indian automobile sector. Tesla co-founder Elon Musk wants the Indian government to reduce import duties on fully built Tesla cars, saying they are too high and that he will consider setting up a plant in India only after gauging the sales potential.

The Indian automobile sector, which accounts for almost half of all manufacturing output in the country and 7 per cent of the country’s GDP of almost $3 trillion, is strongly opposed to any import duty concessions to Tesla as it contends.

Meanwhile, India’s Road Transport and Highways Minister Nitin Gadkari spoke at the India Global Forum earlier this month stating that the government is moving aggressively to encourage the adoption of electric vehicles to help make Indian society “liveable, workable and sustainable with special focus on ethics, ecology and environment”.

Watch Indian Minister Nitin Gadkari Detail Out India’s Plans For Electric Vehicles In This Interview At India Global Forum

The Modi government has clearly enunciated its ambitions of positioning India as one of the world’s major manufacturing hubs for EVs. Several officials have also spoken of inviting marquee global EV makers such as Tesla and Triton to invest in India even as homegrown automakers such as Tata Motors and Mahindra & Mahindra and MNCs like Maruti Suzuki and Hyundai go full steam ahead with their plans in this segment.

Suzuki, Toyota may launch EV in India in 2025

In fact, the Japanese media reported recently that Maruti Suzuki, India’s largest carmaker, will launch its first electric four-wheeler in India in 2025 at an aggressive price point of less than $13,000. This will be its maiden foray in this space anywhere in the world.

This car, expected to be a hatchback or a mini-SUV, could be co-developed by Toyota Motor Corporation, in line with their global alliance to co-develop vehicles, and could spawn Toyota variants as well.

The report added that Suzuki is planning to set up a battery manufacturing unit in India in a tie-up with Japanese technology giant Toshiba and automotive components company Denso to supply power packs for its hybrid models.

Tata Motors' electric sport-utility vehicle (SUV) Nexon EV is displayed during its launch in Mumbai. Musk has been tweeting about high import duty rates in India and sounding out a plea for concessions for Tesla EVs.
Tata Motors' electric sport-utility vehicle (SUV) Nexon EV is displayed during its launch in Mumbai. Musk has been tweeting about high import duty rates in India and sounding out a plea for concessions for Tesla EVs.Courtesy: Reuters

Many of these massive investments by these companies will face a severe market challenge if Tesla is allowed to import fully built cars at concessional duty rates. Tesla has sought an import duty of 40 per cent on fully assembled EVs against the regular rate of 60 per cent for cars priced below $40,000 and 100 per cent for those priced higher.

Musk says Indian duties too high

In a series of tweets last week on the likelihood of launching Tesla cars in India, Musk tweeted: “We want to do so, but import duties are the highest in the world by far of any large country… Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India. But we are hopeful that there will be at least a temporary tariff relief for electric vehicles. That would be much appreciated.”

This, he explained, will allow Tesla to generate demand for its cars in the country. “If Tesla is able to succeed with imported vehicles, then a factory in India is quite likely,” Musk tweeted.

If Tesla does invest in a factory in India, it could be a gamechanger for India’s ambitions of emerging as a global manufacturing hub, but the domestic automobile sector, which is dominated by Japanese and Korean multinationals, strongly feels that granting Tesla any undue advantage will be unfair.

Existing companies oppose sops to Tesla

“The government has put very high threshold conditions in most EV schemes for local content, and the industry is stretching and making investments to meet these,” the Society of Indian Automobile Manufacturers (SIAM), the representative body of Indian automakers, told the media.

“The government wants the industry to achieve 60 per cent localisation for the advanced chemistry cell, which is part of the battery. It will be a major concern that some manufacturers have to localise 60 per cent of the cell, but others get import duty reductions on the whole car,” it added.

The SIAM reaction is seen as an attempt to pre-empt any concessions to Musk, who has written to the ministries of finance, commerce & industry, road transport & highways as well as NITI Aayog.

The government wants the industry to achieve 60 per cent localisation for the advanced chemistry cell, which is part of the battery. It will be a major concern that some manufacturers have to localise 60 per cent of the cell, but others get import duty reductions on the whole car.
- Society of Indian Automobile Manufacturers

Government could provide concessions to entire sector

Even as the low-intensity battle brews between the billionaire Tesla co-founder and the Indian auto industry, a senior official told ET, a leading Indian financial daily, that the government is open to considering lower import duties and other incentives if Tesla sets up a factory in India. The concessions, he added, will be available to the entire industry and will not be limited to Tesla.

“We will be open to consider, especially if they will set up a manufacturing place here,” said the official.

Speaking at India Global Forum, Gadkari had said the Modi government wants to make India a manufacturing hub for electric cars, electric buses, electric two-wheelers, electric autorickshaws and batteries.

The government will be looking to provide facilities and incentives to promote EV across the country. This could range from charging stations and localisation of EV parts.
The government will be looking to provide facilities and incentives to promote EV across the country. This could range from charging stations and localisation of EV parts.Courtesy: Getty Images

Special incentives for EV production, says Gadkari

“The government is giving special incentives for the production of e-vehicles. The tax on internal combustion vehicles is 48 per cent compared to just 5 per cent for e-vehicles. We are also working on zinc ion, aluminium ion and steel ion. Research is also ongoing on making hydrogen fuel cells. That is also a priority sector,” he said.

“The government is supporting localisation of all EV parts. The battery is the most important part of an e-vehicle and accounts for 50 per cent of its cost. I recently chaired a meeting on pushing efforts towards developing alternative battery technologies based on metal ions like zinc ion, aluminium ion, etc. Our research is at its final stages and I’m confident we will get good results from that. We are also aggressively pursuing research on green hydrogen as a transport fuel. IIT Chennai is conducting research on using sea water using solar power,” said Gadkari.

$8-billion PLI scheme for electric cars

The government has already allocated a massive sum – $8 billion – for a production-linked incentive (PLI) scheme to encourage automakers to set up new plants in India. Further, it will provide $3 billion as PLI support for ACC battery storage production.

Then, under the FAME-2 to promote the manufacture and use of EVs, the Modi government is offering a subsidy of $430 per two-wheeler, $4,000 per car and $47,000 per bus.

At present only about 1 per cent of vehicles sold in India have electric power trains. “India has about 300,000 electric two-wheelers and the number is rising rapidly. They can be charged easily at home and they have low operational and maintenance costs,” Gadkari added.

With the government keen to encourage rapid growth in the sector, the industry will wait keenly for the next set of policy measures for this sector.

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