India considers EV import tax cut

Date: August 28, 2023. India is considering a potential reduction in import taxes on electric cars as part of an incentive for EV manufacturers to establish local production facilities. This move comes on the heels of Tesla’s recent endeavors to make inroads into the Indian market.

Elon Musk, Tesla’s CEO, is in talks with Indian authorities about establishing manufacturing operations in the country. In response, the Indian government is reportedly evaluating the possibility of offering import tax cuts to EV manufacturers. These manufacturers would need to commit to producing a substantial portion of their vehicles domestically.

According to two sources, including a senior Indian government official, the strategy under consideration might allow automakers to import fully-built EVs into India at a reduced tax of as little as 15%. This would be a significant decrease from the current 100% tax that applies to cars that cost more than $40,000 and the 70% tax for the remainder.

Tesla has expressed interest in local manufacturing and creating a new EV for the Indian market. The new EV is intended for export as well and is expected to cost around $24,000, which is approximately 25% less than its current entry model.

The potential tax cut benefits not just Tesla, but all electric car makers ready to invest in local production. Manufacturing EVs domestically is anticipated to grant a competitive advantage to companies opting for in-country production. Furthermore, this would effectively reduce their production costs and make their vehicles more affordable for Indian consumers.

As any reduction in tariffs on imported EVs could upset local businesses like Tata and Mahindra who are investing to produce electric cars domestically, the Indian source added. Moreover, New Delhi will proceed cautiously in assessing the policy suggestion.

However, the suggested tax cut depends on manufacturer’s substantial local production commitment; this distinction is crucial to understand. The approach guarantees reduced tax benefits flow to Indian consumers, ensuring fair distribution of lowered tax rates’ advantages. Additionally, it aims to provide a meaningful boost to the country’s manufacturing ecosystem.

Amidst global EV momentum, India’s tax incentive potential emerges, fostering appeal for electric vehicle manufacturers on a broader scale. These manufacturers are looking to establish a strong foothold in a rapidly growing market. The outcome of the ongoing discussions between Tesla and Indian authorities will likely set the tone. This will influence how other global EV manufacturers approach the Indian market in the coming years.

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