India considers slashing import duties on EVs after Tesla lobbying

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India considers slashing import duties on EVs after Tesla lobbying
Will Tesla’s Indian odyssey begin soon? A row of Tesla Model S sedans are seen outside the company's headquarters in Palo Alto, California. The GoI is considering reducing import duties on EVs. Will this be the beginning of new things to come in India’s auto sector?Courtesy: Reuters

The GoI, which has taken a series of ambitious decisions to invite foreign investments recently, appears to have taken the call of slashing import costs by as much as 40 percent. This could change the EV game in India should Tesla reconsider.

Following a call by Tesla supremo Elon Musk, requesting a consideration to reduce import duties on fully built Tesla cars, it appears that the Government of India, in a series of ambitious decisions to invite overseas investment across multiple sectors, is now considering slashing import duties on electric cars to as low as 40%.

Musk’s earlier assertion was that import duties levied by the government were too high and that he would consider setting up a full-fledged plant in India only after the sales potential report appeared risk worthy.

The Narendra Modi government’s decision which was confirmed by unnamed sources to Reuters yesterday seems to have moved this dial forward. Musk’s pleas to the Indian authorities had earlier appeared to have polarised the domestic automobile industry, particularly the EV sector.

For imported electric vehicles (EVs) with a value of less than $40,000 - including the car's cost, insurance and freight - the government is discussing slashing the tax rate to 40% from 60% presently, the officials confirmed to Reuters.

For EVs valued at more than $40,000, it is looking at cutting the rate to 60% from 100%, they said.

Tesla CEO Elon Musk at the construction site of Tesla's gigafactory in Gruenheide, near Berlin. The entry of Tesla could be the EV gamechanger that the Indian market could be waiting for.
Tesla CEO Elon Musk at the construction site of Tesla's gigafactory in Gruenheide, near Berlin. The entry of Tesla could be the EV gamechanger that the Indian market could be waiting for.Courtesy: Reuters

Discussions are ongoing, say sources

"We haven't firmed up the reduction in duties yet, but there are discussions that are ongoing," one of the officials said.

In an earlier report which was published by India Global Business, it was observed that 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.

India is the world's fifth-largest car market with annual sales of about 3 million vehicles, but a majority of cars sold are priced below $20,000. EVs make up a fraction of the total and luxury EV sales are negligible, according to industry estimates.

Tesla, in its pitch to the government - first reported by Reuters in July, argued that lowering import duties on EVs to 40% would make them more affordable and boost sales.

Tata Nano automobiles are seen parked at the carmaker's plant in Sanand, Gujarat. The government’s proposed decision to slash inport duties in the auto industry could provide benefits to the domestic economy, specially with the entry of global players like Tesla.
Tata Nano automobiles are seen parked at the carmaker's plant in Sanand, Gujarat. The government’s proposed decision to slash inport duties in the auto industry could provide benefits to the domestic economy, specially with the entry of global players like Tesla. Courtesy: Reuters

The government is pulling out all the stops to woo EV players into the country. And yesterday’s decision of slashing duties, if confirmed, would be a statement of intent. The government’s decision, however, is not a carte blanche to Tesla. India would need to see some solid evidence that companies such as Tesla are providing some benefit to the domestic economy – manufacture locally, for example, or give a firm timeline on when it would be able to, one of the officials said.

Looking for economic gain

“Reducing import duties is not a problem as not many EVs are imported in the country. But we need some economic gain out of that. We also have to balance the concerns of the domestic players,” the official said. The second official added that since the duty cut is being considered only for EVs and not other categories of imported cars, it should not be a concern for domestic automakers – that mainly manufacture affordable gasoline-powered cars.

Haryana Chief Minister Manohar Lal Khattar addresses at the inauguration of Hyundai’s new corporate headquarters, in Gurugram last month. Hyundai, which has around an 18% share of India‘s car market is also hoping for a cut in import duties.
Haryana Chief Minister Manohar Lal Khattar addresses at the inauguration of Hyundai’s new corporate headquarters, in Gurugram last month. Hyundai, which has around an 18% share of India‘s car market is also hoping for a cut in import duties.Courtesy: ANI

India‘s finance and commerce ministries, as well as its federal think tank Niti Aayog, chaired by Prime Minister Narendra Modi, are discussing the proposal and all stakeholders will be consulted.

This is not the first time that international car makers have approached the GoI to consider slashing their import rates. Automakers including Daimler’s Mercedes-Benz and Audi have for years lobbied for lower import duties on luxury cars but faced opposition from domestic companies. The consequences of this resulted in the fact that India‘s luxury car market has remained small with average sales of around 35,000 vehicles a year. At the forefront of this opposition were car makers Tata Motors, which produces affordable electric cars in the country, and Softbank Group-backed Ola, which is making electric scooters in India.

Tesla finds support from other manufacturers

Tesla’s cars would fall into the high-end EV category, which are mainly imported into India and account for a much smaller percentage of these sales. Mercedes, Jaguar Land Rover and Audi sell imported luxury EVs in the country. Tesla’s pronouncements have, however, found support from Mercedes as well as South Korean automaker Hyundai Motor, which has around an 18% share of India‘s car market.

It is being perceived that Tesla’s entry into the Indian market would make the EV model more penetrable in India which is yet to pick up the pace adopted by other auto markets in the world.

- Reuters

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