Lower Import Duty For Tesla? Here's Everything We Know So Far

Published: Thursday, October 19, 2023, 8:39 [IST]

The Indian government is reportedly considering the reduction of import duty on electric vehicles (EVs), conditioned by the manufacturers' commitment towards local production and sourcing.

This move, if implemented, would be of significant advantage to major EV manufacturers such as Tesla, who antecedently have been kept at arm's length due to the country's steep import tax structure. Notably, imported electric vehicles currently attract a 100% import duty, considerably inflating their prices in the market.

Towards Local Manufacturing & Lower Emissions

The Centre has been candid in its preference for vehicle manufacturers, especially those in the EV industry, to establish local production units. Aimed at accelerating the adoption rate of zero-emission vehicles in India, this stance is part of a broader vision for reduced dependence on imported fuel and substantial emissions reduction.

A transition towards local manufacturing not only generates employment opportunities but invigorates the overall economic growth as well. High import tax, widely viewed as a deterrent, also steers manufacturers towards setting up local manufacturing units as opposed to procuring units from foreign markets.

The speculation around tax reduction, which originated from a report in the Times of India, suggests that the government might relax import tax conditions, particularly for 'high-tech vehicle manufacturers like Tesla', given they provide assurances for future local production and sourcing.

Manufacturers' Stance & Potential Winners

Tesla, recognized globally as a leading EV manufacturer, has been contemplating entering the Indian market for some time now. CEO Elon Musk has publicly expressed eagerness in this endeavour, albeit voicing concerns about the inhibitory import tax structure. Musk's dream could instigate other luxury EV manufacturers such as Audi and BMW, who already preside over a nascent market in India with imported EVs, to broaden their horizons.

However, while a decrease in import duty may bolster the prospects of international manufacturers, it could potentially destabilize domestic players like Tata Motors and Mahindra who have heavily invested in local manufacturing. The potential shift of potential EV buyers to imported models may emerge as an unintended consequence.

Global Comparison Of Import Duty

When compared to international norms, India's import duty is undeniably high. The United States levies an import tax of just 2.5%, Australia at 5%, Canada at approximately 6.1%, and France at 10%. Higher rates do exist, albeit still lower than India's, such as Saudi Arabia (15%), China (23%), and Brazil (35%).

In conclusion, while the government's proposed strategy of reducing import duty tied with a commitment to local manufacturing appears beneficial in the short run, further consideration is needed regarding its potential impact on domestic manufacturers.

This approach draws a delicate balance between fostering an EV culture in India, enhancing local manufacturing, and creating a level playing environment for both domestic and international manufacturers.