Tesla's Import Duty Negotiations, Govt May Reduce Import Duties Before Its Arrival

Key Highlights:

• Tesla is eyeing the Indian market for expansion, but the high import duties have been a deterrent to its decision-making process.
• Tesla is seeking a reduction in import duties to 15% for electric vehicles (EVs)
• The government may require Tesla to provide bank guarantees to safeguard its interests.

India emerged as the world's third largest auto market in 2024, following China and the USA. No wonder that the Indian auto market holds great potential in the EV segment yet to be unlocked. And for the same Tesla is looking for new opportunities on Indian land. The only issue which is making Tesla hesitant to make any decision is the high import duty taxation regime in India.

Path Forward: Potential 15% Import Duty for EVs

We all are familiar with the ongoing talks between Tesla and the government. Tesla has shown its interest in investing almost USD 2 billion in India, but wants a relaxation on the import duty. Currently the tax structure in India imposes 100% import duty for cars valued over USD 40,000 (approx. Rs 33 Lakh) and 60% for cars below USD 40,000. As per Tesla the import duties are way too high for the brand to land in India.

For the time being, initially Tesla wants to enter India through the CBU route. And for importing its vehicle, Tesla wants India to reduce its import duties to 15%. Though the government is known to execute a tough stand on its import policies, it is likely to say that a new import duty can be announced soon on the matter of EVs. The new import policy is expected to reduce import duty only if the brand agrees to invest in setting up local manufacturing.

Safeguarding Interests: Bank Guarantees and Import Duty Relaxation

For this matter, the government is expected to ask the manufacturer for bank guarantees. However, the relaxation in import duties will remain valid for up to 2-3 years. And if the manufacturer in any case fails in investing in local manufacturing after the relaxation period, then the government can encash the bank guarantees. However,  the exact amount of bank guarantee is not determined by the parties yet. This way, bank guarantee will be a good tool to ensure that OEMs which are serious about long-term investment in India, could get the low import duty advantage.

Beyond Tesla: Implications for Global Automotive Brands

The benefit of import policy changes will impact not only Tesla but other big OEMs too. Recently Ford trademarked Mustang Mach-E electric compact SUV, which can be seen as a move by Ford to reenter the Indian market. Ford is likely to  benefit from the new taxation policy for EV imports just like Tesla.

Local Manufacturers' Dilemma: Impact of Policy Amendments

Though the new EV import policy is in the pipeline, and can’t be determined till now, we can’t guess the kind of impact on in-house auto makers. However, it can be ensured that the policy would not go against the favour of local manufacturers, and will ensure that locally built in-house EVs remain first choice among the customers.

CarBike360 Says

If we look at the effort of local manufacturers like Mahindra and Tata, we see that these companies have put massive investment in their EV portfolio. It is expected that the new policy must incentivize the local brands. This will encourage investments, employability and technical literacy. 
 

Also Read: EV9 Electric SUV Spotted Testing in India, May Launch by June 2024