India is working on a new electric vehicle policy that would slash import taxes for automakers that commit to some local manufacturing, following a proposal by Tesla (TSLA.O), which is considering entering the domestic market. The policy being considered could allow automakers to import fully-built EVs into India at a reduced tax as low as 15%, compared to the current 100% that applies to cars that cost above $40,000 and 70% for the rest, according to two people with direct knowledge of the matter.
This would make the price of EVs much more competitive in the country, which is now the world’s third-largest market for EVs. In addition to the lower duties, the government is also setting aside funds for the research and development of EVs.
Officials say the move will help meet Prime Minister Narendra Modi’s goal of boosting the share of electric vehicles in India to 30% of total sales by 2030. The government is also offering other incentives to buyers and manufacturers, including tax breaks, subsidies, and the creation of charging infrastructure.
The lower taxes will allow Tesla to sell its full range of models in the country, not just the new car it wants to produce locally, one source said. The source added that New Delhi is cautiously approaching the policy as reducing import duties risks disrupting the country’s auto market and upsetting local players like Tata Motors and Mahindra & Mahindra.
A fourth source said the lower taxes will allow Tesla to bring in its cheaper Model 3 EVs, which it has previously had difficulty selling in the country because of the high import duties. This model is popular among Indian buyers, who tend to favor more affordable and practical four-wheelers.
The official noted that the government would also be amending town planning provisions and building laws to provide unique space for EV battery charging stations, earmarking areas for low-emission zones, and reserving parking spaces for electric cars. It will also promote EV parks and create free trade warehousing zones to attract investments in the sector. It will also set up working groups, centers of excellence, and incubation centers for EV technology development. EV venture capital funds will also be established to support start-ups.
India’s commerce ministry is working on the plan, and Tesla did not respond to requests for comment. Finance Minister Nirmala Sitharaman told reporters there is no proposal before her ministry to reduce import duties on EVs. She said she would monitor progress on the new EV policy and consider “all the facts” before making any decisions. The ministry has been trying to lure global automakers to invest in the country by reducing duties on imported EVs. The move has boosted sales of EVs in the country, which are currently at 2% of total car sales.
