The "Teslas" have finally knocked on the door of tariffs on India's electric vehicle market.
On March 15, local time, India announced a reduction in tariffs on electric vehicles for automakers who meet certain conditions.
To some extent, India has opened the door to tariffs on the local EV market, supporting the plans of automakers such as Tesla to enter the Indian market, but also laying the groundwork for the further development of EVs in India.
India eases tariff restrictions on electric vehicles
As the world's third-largest automotive market, India sold 86,870 electric vehicles in 2023, doubling from 2022 and accounting for 2.5% of the country's total sales.
However, the pace of electrification in India is very slow, with the EV market share only exceeding 1% in 2022 and 2% in the first half of 2023, and finally ending in 2023 with a share of 2.5%.
However, given the Indian government's goal of having EVs account for 30% of total car sales in India by 2030, there is still a lot of potential for the EV market in India, despite the current small size of the EV market.
In addition, the government of Prime Minister Narendra Modi has focused on boosting the sales of electric vehicles and offering millions of dollars in incentives to companies to encourage the production of electric vehicles and batteries.
What's more, India is taxing only 5% on electric vehicles, while it is as high as 43% and 48% for hybrid and petrol vehicles.
Riding on the market trend and government support, many automakers are considering entering the Indian EV market or expanding their presence in India.
Image source: Tesla
However, as Tesla CEO Elon Musk previously said - "India is one of the regions with the highest import tax on electric vehicles in the world", so it is difficult for automakers who have not yet established factories in the country to enter the Indian electric vehicle market.
It is reported that India imposes a 70% or 100% tax on imported electric vehicles, depending on their value. Among them, India imposes a 70% tariff on imported cars under $40,000, and up to 100% on cars over $40,000.
It's easy to see that India's high EV import taxes are enough to deter many non-local automakers. Compared to local Indian automakers, their products have no competitive price advantage after a round of tariffs.
As a result, non-local automakers, including Tesla, have repeatedly called on the Indian government to reduce import duties on electric vehicles.
Tesla was previously revealed to have sent letters to Indian ministries proposing a significant reduction in import duties on electric vehicles. Balbir Singh Dhillon, head of Audi India, also said in an interview, "If the Indian government can reduce tariffs by three to five years, we can test which models are more suitable for the Indian market and develop a more reasonable price strategy." ”
Eventually, at the urging of automakers, India finally adjusted its EV tariff policy – the government would slash its EV import tax if automakers committed to producing in India.
On March 15, local time, India lowered import taxes on certain electric vehicles produced by automakers, but these automakers must commit to investing at least $500 million in the local area and starting local production within three years.
Under India's new policy, which comes into effect immediately, companies that meet certain conditions will be able to import up to 8,000 electric vehicles worth $35,000 or more per year at a reduced rate of 15% for up to five years.
The moment of victory for the "Teslas".
Given that the "Teslas" have been trying to lobby the Indian government to reduce the import duty on electric vehicles, the latest policy is undoubtedly a big win for them.
Among the automakers looking to enter the Indian market, Tesla is the most well-known and influential in the Indian government's decision-making. However, Tesla's negotiation process with the Indian government can be described as a twist and turn.
Tesla has been trying to enter the Indian market for years, but Tesla, which has always been known for its efficiency, has been slow to make progress on the matter, and has even shelved the plan several times before.
The reason for this is that Tesla initially hoped that the Indian government would reduce its import tariffs on electric vehicles, so that it could import electric vehicles into the Indian market first, so as to test the situation in the local market, but the Indian government had previously refused to reduce the tariffs, and instead tried to persuade Tesla to commit to building a local factory for production. The two sides then shelved the negotiations.
Photo credit: Press Information Bureau of India
But last year, negotiations that had been put on hold by the two sides appeared to have restarted. Tesla executives were exposed by foreign media to visit India and held multiple rounds of consultations with the government. Musk also met with Indian Prime Minister Narendra Modi in June last year.
At the time, Musk said India had great potential for a sustainable energy future including solar, stationary battery packs, and electric vehicles. "India has a better prospect than any great country in the world. Modi really cares about India because he's pushing us to make a big investment in India, and of course that's what we're going to do, we're just trying to find the right time. ”
In July last year, the Times of India, citing Indian government sources, said that Tesla had begun discussions with the Indian government on an investment proposal to build an auto factory in the country. It is reported that the plant will produce electric vehicles priced at $24,000 and will have an annual production capacity of up to 500,000 units.
Tesla is also considering India as an export base, with plans to export cars to countries in the Indo-Pacific Ocean, according to people familiar with the matter. However, Tesla has also once again raised the hope that India will reduce the import tax on electric vehicles.
In addition to Tesla, Vietnamese EV maker VinFast, Volkswagen, Skoda and Audi have also called for a reduction in import taxes on EVs.
In view of Tesla's efforts to reduce the import tax on electric vehicles in India, some people even believe that the threshold for the import tax reduction of electric vehicles in India is exclusively for Tesla.
India's electric vehicle tariffs used to be $40,000, but the latest policy limits the price of cars to $35,000 or more. According to Tesla's website, Tesla's cheapest model, the Model 3, starts at $38,990 in New York, USA.
India's Minister of Commerce and Industry, Piyush Goyal, denied this remark and stressed that India will not adjust its policies to accommodate Tesla, and that India has laws and tariff rules to attract electric vehicle manufacturers from all over the world to set up factories in India.
However, to a certain extent, although this result is jointly contributed by many automakers, Tesla is undoubtedly the "first credit".
Industry analysts pointed out that in addition to selling new energy products (electric vehicles and battery energy storage systems), Tesla's construction of a factory in India is also expected to help India form an electric vehicle value chain. Management consultancy Arthur Little also noted that given the current disruption of global supply chains and the Indian government's policy of self-reliance, "it is important for India to create its own local solutions and support local value chains".
The lost moments of the "Tatars".
While the "Teslas" cheered the result, homegrown automakers such as Tata Motors and Mahindra were in a moment of loss, having repeatedly objected to the event, saying it would hurt India's EV industry.
Among them, Tata Motors, the automaker that currently dominates the Indian EV market, has repeatedly urged the Indian government not to reduce the import tax on EVs and protect the domestic industry and its investors.
On the one hand, Tata said that its investors make investment decisions on the premise that the tax regime that favors local businesses will remain unchanged. On the other hand, Tata believes that in the early stage of the development of the electric vehicle industry, India's local electric vehicle companies need more government support, and the reduction of tariffs will hit the entire domestic industry and the investment environment will be damaged.
Anish Shah, CEO and managing director of Mahindra Group, also previously noted: "Our approach is essentially to build a stronger industry in India, rather than having manufacturing done outside of India, which is just becoming an importer of products. ”
Image Credit: Tata
However, the Indian government is taking the matter a step further, focusing on long-term development and industrial development rather than the adverse effects mentioned by local automakers.
Speaking to reporters at a press conference, India's Minister of Commerce and Industry, Piyush Goyal, said, "We invite companies from all over the world to come to India. I believe India will become a global EV manufacturing hub, which will create jobs and improve trade. ”
Industry analyst Gaurav Vangaal also said that India's move will open the door to the world's third-largest automotive market for new automakers, suppliers, technologies and the entire EV ecosystem. He added: "A number of wait-and-see automakers are now looking to enter the Indian market. ”
VinFast, a Vietnamese electric vehicle maker, plans to invest $2 billion in India and began building a plant in the southern Indian state of Tamil Nadu last month.
It is not difficult to see that at a time when the automotive industry is facing a once-in-a-century change, India, Thailand and Indonesia are competing to introduce electric vehicle incentives to attract investment, hoping to become electric vehicle manufacturing centers and complete industrial transformation and upgrading.
India's rival Indonesia, for example, has offered to reduce import tariffs from 50 percent to zero for electric vehicle manufacturers planning to invest locally, a move seen as aimed at attracting Chinese companies and Tesla.
With such fierce competition, an Indian official involved in policymaking pointed out that "if India wants to become an EV hub, we need more manufacturers...... Local industries don't have to worry about Tesla or any other business going to wipe them out. ”
India's Ministry of Commerce and Industry also said the goal of the new policy is to "strengthen the EV ecosystem by promoting healthy competition among EV companies".