Tesla effect: Lower EV import duties soon?

All completely built-up (CBUs) vehicles priced below $40,000 now face an import duty of 70%, and a new national EV policy may slash it to 15-30% for EVs priced up to $25,000-35,000, the people said on the condition of anonymity. At 15% duty, these CBUs will be on par with the import duty for CKD (completely knocked down) cars. This will also come with the caveat that they begin local manufacturing in the next two to three years and a clause to claw back the duty sop if they fail to do so.

Elon Musk’s Tesla recently made a second push to reduce EV duties in India as it scouts for new markets amid a slowdown in the West and growing competition from local players in China. The American carmaker is targeting customers at the top end of India’s growing mass-premium segment of EVs and does not want to be a luxury player competing for a small set of wealthy buyers, the people said. India’s electric car market is close to doubling sales this year, up from nearly 33,000 last year.

“They (Tesla) could start with 50,000 CBUs," one of the two people said. “Their product will be in the range of $25,000-35,000, which is what they’ve discussed with the government. They are, however, still finalizing what products they’d like to bring to the country. Tesla is also looking if they can hit the $20,000 price point, but it’s all under discussions right now."

Tesla has been targeting a lower price band of about ₹20 -30 lakh for EVs in India, the person cited above said. This could be the lower variant of the Model 3, which is offered at nearly $39,000 in the US, or a brand new, smaller $25,000 EV, which it is reportedly developing for the US as well as global markets.

A new EV policy with lower duties will benefit foreign automakers like Tesla, who commit to local manufacturing, but may disappoint local automakers such as Tata Motors and Mahindra & Mahindra, which have committed to significant EV investments. However, the government believes the policy could attract new investment to the country in an increasingly important sector and provide a level-playing field to foreign entrants since those with domestic operations are eligible to benefit from its production-linked incentives (PLI) scheme.

The department for promotion of industry and internal trade (DPIIT) is anchoring the discussions. The department has sought feedback from various departments and domestic automakers on the matter, but formal industry and stakeholder consultations are yet to take place, the people cited above said on condition of anonymity.

A spokesperson for Tesla did not respond till press time.

“European luxury carmakers such as BMW, Audi and Mercedes Benz will likely stay in the luxury space with their EV offerings. Those manufacturers will be unable to compete at these price points. Tesla is not in their space. Even if the price is fixed at $35,000, the question is whether they will be willing to make significant investments in India," the first official said. “They (Tesla) can go up to 300,000-400,000 cars in India per year. This year, we could have 100,000 EVs. Tesla is a highly vertically integrated manufacturer whose game is in high volumes, and they cannot be viable at small volumes," he added.

“The government should approach these policy changes in a phased manner," said Gaurav Vangaal, associate director of S&P Global Mobility. “There should be some production target for OEMs so they start building locally. Doing so will give them an edge in the domestic market. It is necessary to open up the market and allow the EV ecosystem to develop much faster. We need to see the price and specifications of the Tesla model that comes to India before gauging how competitive it will be. But the C and D segments (at about $30,000-35,000) will see an impact where new ground-up EVs will be introduced in the market. The Indian market is maturing and car prices are steadily going up," Vangaal added.