India Mulls Lower EV Import Duties to Woo Tesla Manufacturing

The Indian government is considering a dramatic cut to electric vehicle import tariffs in a bid to convince Tesla to commit to local manufacturing, reports Reuters. According to its sources, India could slash duties on EVs from 100% to just 15% for brands that pledge to build factories in the country.

The proposal is seen as an overture to Tesla and its chief executive Elon Musk. Tesla has long lobbied India to reduce tariffs to allow it to import cars from its Shanghai Gigafactory. But New Delhi rejected appeals last year amid heightened tensions with China.

However, communications have reopened after productive talks between Prime Minister Modi and Musk during a recent US visit. Tesla executives have since visited India to explore launch plans and manufacturing opportunities.

The import duty proposal risks irking incumbent carmakers like Volkswagen, Mercedes-Benz and Hyundai who have already invested in local production without special incentives. It appears to be a concession aimed squarely at attracting Tesla to one of the world's fastest growing EV markets. Indian automakers like Tata Motors and Mahindra have also made big moves in the EV space, and this could hamper their development as it may open the market to more EV brands.

The Indian government is particularly wary of Chinese brands taking advantage of these rules. In 2014, when Modi first came to power, Chinese smartphone brands entered the market and overwhelmed local players, leaving them irrelevant a decade later. The government is keen to avoid a repeat with EV manufacturing.

Officials have also told Tesla that India is not keen on many of its Chinese partners coming to India. Scrutiny already led BYD to abandon a $1 billion EV investment plan. MG Motors, backed by SAIC, has also pledged to further localise its India operations by reducing Chinese stakes.

While denying the reports, Finance Minister Nirmala Sitharaman stated there is currently no plan to cut EV duties. But backchannel discussions are likely ongoing given Tesla's keenness to enter India and New Delhi's desire for technology transfer.

Musk has previously floated plans for a $25,000 Tesla hatchback that could sell well in developing markets like India. With Tesla's soaring valuation, India also recognises the halo effect of hosting a Tesla gigafactory. But manufacturing commitments will likely be a precondition for any import duty relaxation.

For now, the ball is in Tesla's court to respond to the overture and bring its sought-after EVs to Indian roads. But New Delhi will be cautious of being seen as giving special favours to Musk's luxury brand over domestic companies.