According to reports, people familiar with the matter said today that Tesla’s talks with the Indian government about potential tax incentives have reached an impasse, mainly because the Indian government does not want to Tesla did not commit to produce cars locally. In the case of any discount to Tesla.
Tesla is desperate to import and sell its electric vehicles in India. The company has been lobbying officials in New Delhi to lower the tariffs for nearly a year. Tesla CEO Elon Musk has previously said India’s tariffs are among the highest in the world.
But official Indian sources said government officials were unconvinced by Tesla’s lobbying because the company had yet to express firm plans to invest in India. Tesla can only live up to Prime Minister Narendra Modi’s Make in India vision if it promises to build its cars locally.
Another person familiar with Tesla’s thinking confirmed that Tesla’s talks with the Indian government had indeed stalled. For Tesla, the plan to enter the Indian market has not progressed, the person said.
Entering the Indian market has suffered setbacks
Analysts say the standoff could derail Tesla’s ambitions to enter the Indian market. Because Tesla has been pinning its hopes on the Indian government to lower import taxes to make its cars more affordable for consumers.
Currently, India’s electric vehicle import tax is 60% for cars priced below $40,000 and 100% for cars priced above $40,000. According to information on Tesla’s US website, the company only has one model that sells for less than $40,000, the Model 3 Standard Range Plus. This would make India the most expensive market for Tesla cars in the world, out of reach for most Indian consumers.
Tesla suggested to the Indian government last year that it would be more appropriate to slash the import tax on electric vehicles to 40%. “Tesla’s reasoning is that with a 40 percent import tax, electric cars can become more affordable, the person said at the time. “At the same time, the threshold can still be kept high, and when demand rises, it can still be promoted. Automakers manufacture locally in India.
If you don’t promise to build a factory, there will be no discount
Tesla has told officials it is “open” to sourcing more auto parts locally and eventually shifting to manufacturing, people familiar with the matter said today, while the Indian government wants a firmer commitment from Tesla.
“It is not realistic to win tax incentives if Tesla does not want to invest in India,” said a senior Indian government official, adding: “It is extremely unlikely that import duties will be lowered in the short term.”
However, another person familiar with the matter said that Tesla is not giving up and pinning its hopes on the upcoming federal budget on February 1. At that point, Tesla will assess whether its lobbying efforts have had any effect before reconsidering how to enter the Indian market.
Tesla also recently met with officials from the Indian tax and customs department in order to enter the Indian market. Tesla has also met with Modi’s office before, hoping to facilitate a meeting between Musk and the prime minister to discuss related plans.
In fact, in order to strengthen local manufacturing in India, the Modi government has taken a tough stance on the requirements of foreign companies in the past. In 2017, Apple sought tax incentives, including lower import duties, to manufacture iPhones locally, but many of the requests were rejected.
Musk has previously said on Twitter that Tesla may consider making cars in India if it succeeds in selling imported cars. Last week, he tweeted that Tesla is “still working through many challenges with the Indian government.
Originally planned to go on sale in 2021
In February last year, Tesla registered a company in India, taking a step towards entering the Indian market. It was expected at the time that Tesla could enter the Indian market as soon as mid-2021.
It was reported in March last year that Tesla was planning to partner with Tata Power, the power generation arm of India’s Tata Group, to build an electric vehicle charging infrastructure in India in preparation for the launch of electric vehicles in India.
Currently, the premium EV market in India, and indeed the entire EV market, is still in its early stages of development. Cars are still too expensive for the average consumer, and there is little charging infrastructure. Of the 2.4 million vehicles sold in India in 2020, only 5,000 were EVs, and most were priced under $28,000.