Government will reduce import taxes on electric vehicles for automakers investing $500 million

India said on Friday it would reduce import duties on certain electric vehicles for companies that commit at least $500 million (about Rs 4,142 crore) to investment and manufacturing facilities over three years, potentially bolstering Tesla’s plans to enter the market .

The policy is a big win for Tesla because it is in line with policies the company has been lobbying for in New Delhi. Sources said last July that the automaker had offered to build a factory but in the meantime wanted to cut import taxes, which CEO Elon Musk said were among the highest in the world. .

Musk has been trying to enter the Indian market for years, but New Delhi was not keen unless he committed to local manufacturing. Tesla officials have visited India several times in recent months, and Musk met with Indian Prime Minister Narendra Modi last year.

Companies that meet investment and manufacturing requirements will be allowed to import a limited number of electric vehicles at a lower tax rate of 15% for cars costing $35,000 (approximately Rs. 29 lakh) and above. India currently levies a tax of 70% or 100% based on the value of imported cars and electric vehicles.

According to the automaker’s website, Tesla’s cheapest model, the Model 3, starts at $38,990 (approximately Rs. 32.3 lakh) in New York. The company did not immediately respond to an email seeking comment.

“We invite global companies to come to India. I believe India will become a global hub for electric vehicle manufacturing, which will create jobs and improve trade,” Indian Commerce Minister Piyush Goyal said after the policy was announced told reporters at a press conference. His ministry.

Goyal said the move will benefit consumers, who will buy electric vehicles at cheaper prices, while also helping the government achieve its goal of reducing oil imports, thereby reducing foreign exchange outflows.

India’s electric vehicle market is small but growing as domestic automaker Tata Motors dominates sales. In 2023, electric models will account for about 2% of total car sales in India, and the government hopes to increase this proportion to 30% by 2030.

The new policy will open the door for global automakers to enter the world’s third-largest auto market, forcing companies to look for new markets to boost sales at a time when growth in electric vehicles is slowing.

Vietnamese electric car maker VinFast said it plans to invest $2 billion (about 16,577 crore rupees) in India and started building a local factory in the southern state of Tamil Nadu last month.

VinFast also asked the government to reduce import duties on electric vehicles within about two years so that customers can become familiar with its products while local factories come into production.

Policy in development

India has been studying the policy for months, despite lobbying by Tata Motors and rival Mahindra & Mahindra over concerns that lower import taxes on electric vehicles would harm the domestic industry and its investors, Reuters reported.

The goal of the new policy is to “strengthen the EV ecosystem by promoting healthy competition among EV players to achieve high production, economies of scale, and lower production costs,” the Commerce Ministry said.

Gaurav Vangaal, deputy director of mobility at S&P Global, said this will open up the Indian auto market to new automakers, suppliers, technologies and the entire EV ecosystem.

“Several carmakers who were on the fence now want to enter India. Indian consumers have the option to experience global technologies and products on Indian roads,” he added.

Under the new policy, which takes effect immediately, electric vehicles can be imported at a lower tax rate for up to five years, with a total annual cap of 8,000 vehicles.

The tariffs waived by the government on imported electric vehicles will be limited to the company’s investment or close to $800 million (approximately Rs. 6,628 crore), whichever is lower.

Investment commitments made by companies must be backed by bank guarantees, which will be invoked if the company fails to comply with the requirements of the policy.

© Thomson Reuters 2024