The Indian government has finally agreed to lower its punitive electric vehicle import tax under the new policy announced Friday by the Ministry of Heavy Industries.
The move is a big win for Tesla as it solves one of the challenges impeding its plans to penetrate the world’s third-largest passenger vehicle market.
India to reduce EV import tax if $5M invested
India will offer lower taxes on certain electric vehicles imported by foreign automakers with at least a $500 million investment commitment for local manufacturing due in three years.
Under the new policy, electric automakers that meet the abovementioned conditions will benefit from a lower tax rate of 15%. However, they can only import a maximum of 8,000 electric vehicles per year. It must also be noted that this incentive only applies to electric vehicle models with a minimum CIF (Cost, Insurance, Freight) value of $35,000.
The new policy also requires electric automakers to achieve a minimum DVA (Domestic Value Addition) of 25% and 50% within a maximum of 5 years.
For context, India currently imposes an import tax of 70% or 100% on electric vehicles, depending on their value.
“The Government of India has approved a scheme to promote India as a manufacturing destination so that e-vehicles with the latest technology can be manufactured in the country. The policy is designed to attract investments in the e-vehicle space by reputed global EV manufacturers.”
India’s Ministry of Heavy Industries said in a press release
Looming competition
India continues to expand its electric vehicle industry, with homegrown automaker Tata Motors leading the market.
However, the potential arrival of foreign electric automakers like Tesla will undoubtedly disrupt the market and challenge Tata Motors’ dominance.
Chinese electric vehicle giant BYD is also planning to invest in local manufacturing in India. However, New Delhi’s stringent investment regulations for nations sharing the land border have stalled BYD’s plans.
Vietnamese startup VinFast also plans to commit $2 billion to India’s electric vehicle manufacturing industry. In February, it officially broke ground in its upcoming EV factory in the southern state of Tamil Nadu.
Benefits
India’s move to approve lower import taxes on certain electric vehicles will surely open the market to new automakers, suppliers, and the entire EV ecosystem, as S&P Global Mobility Associate Director Gaurav Vangaal emphasized.
“Multiple carmakers, who are sitting on the fence, would now like to enter India.”
Gaurav Vangaal, S&P Global Mobility Associate Director
It would be unsurprising to see more American and Chinese electric automakers penetrating the Indian market once Tesla gets in. In fact, Tesla already runs an office in the city of Pune.
In addition, it will significantly solidify the country’s electric vehicle ecosystem by stimulating “healthy competition” among local and foreign electric automakers.
It remains unclear which models Tesla plans to launch first in India. However, it is highly likely to be the smallest and cheapest offering, like the Model 3, Y, and the upcoming “Redwood” project dubbed “Model 2.”
