Tesla, as is wont with its founder Elon Musk, has remained in the eye of the storm in India. Ever since its announcement in 2020 to enter India with its range of electric vehicles (EVs), it has had an equal number of embraces and run-ins with the government. After 2 years of wait, there is no indication of a Tesla to be seen on Indian roads anytime soon.
What is keeping Tesla at bay from India?
Tesla does not have a manufacturing plant in India and wants to import its vehicles that are manufactured in its factories in China. As per India’s existing import duty structure, each Tesla car priced above US$ 40,000, imported into India will invite a 100% import duty. Considering the average price for a Tesla (US$ 45,000 / ₹34 lakh), a 100% import duty and the additional state registration taxes will take its on-road price to over ₹60 lakh. A high price point would take Tesla out of reach of many Indians and make it uncompetitive with other EVs available in the Indian market.
Last year, Tesla sought a reduction in import duties on electric vehicles (EVs) in India. However, the request was denied by Indian authorities who instead asked Tesla to start manufacturing its vehicles in India and avail the various tax exemptions under the Production-linked Incentive (PLI) scheme* for the auto sector.
The tug-of-war
In July 2021, Tesla CEO Elon Musk in his trademark style tweeted that he wants to launch its cars soon in India, but India’s import duties are the highest in the world by far of any large country. Last month, he again tweeted that the company is working through a lot of challenges with the government to launch its products in India. This set off a series of debates at both ends on the merits of the Indian government’s denial. The government has continued to maintain a defiant stand asking Tesla to manufacture in India that will help create the much-needed employment opportunities locally. Early this week, while responding to the question in Parliament, Union Minister of State for Heavy Industries Krishan Pal Gurjar said there cannot be a situation where the market is India, but jobs are created in China. The message was another endorsement of “Make in India” and a rejection of “Import into India”.
On its part, Tesla has further emphasized that it would like to “test the waters” by importing the vehicles and only then decide on investing billions of dollars in building a manufacturing plant in India. In response to the Indian government’s apprehension of an exception for Tesla serving as a deterrent for local manufacturers, Tesla has cited that no Indian OEM currently produces a car (or ICE) with ex-factory price above $40,000 and only 1-2 percent of cars sold in India (EV or ICE) have ex-factory/customs value above $40,000, as a result of which it should not impact any local auto manufacturing company.
While the stalemate continues, four states in India, sensing an opportunity, have rolled out a red-carpet for Tesla promising it the necessary support if it decides to set up its base in the state. Ministers from Telangana, Maharashtra, Punjab, and West Bengal tweeted with their support to Tesla highlighting everything from their state’s infrastructure to their visionary leadership.
Who should blink first?
This is a question that has ramifications on both ends. By delaying its entry into India, Tesla is fast losing ground to local competitors. Tata Motors has already cornered 70 percent of the electric vehicle market in India with its two offerings - Tigor EV and the Nexon EV. It plans to launch at least 10 new electric vehicles in the next four years. Mahindra Electric is already manufacturing two EVs - eVerito and eSupro. Hyundai has launched its first EV - The Kona Electric, and Mercedes-Benz is rolling out a locally assembled electric version of its flagship S-Class sedan by the fourth quarter. Tesla could commit to setting up a local manufacturing unit upon achieving “specific sales numbers” and convince the authorities of its definitive intentions to manufacture locally.
The government on its part is forcing the hand of international companies to set up huge manufacturing units in India and in some cases even move their bases from China to India. It could do well to first introspect what made these companies go to China in the first place and what are the reasons for them to resist coming from China to India. It could do well to take some learnings from Apple’s struggles in setting up a base in India. Despite agreeing to participate in the ‘Make in India’ program, Apple faced a series of challenges such as the lack of local manufacturers that could handle all its components, a high duty structure for the imported components, incompatible health, safety & environmental (HSE) standards of Indian manufacturers and the protectionist trade policies prevalent in India then. It needs to factor that neither the market size nor the underdeveloped charging infrastructure in India would justify such an investment into luxury EV manufacturing yet. The government could consider a “time-bound” relief to international auto-manufacturers to import with a reduced duty structure until the Indian market and India’s trade policies become a “magnet” for foreign brands to come knocking on India’s doors without being forced to.
Reference Reading
*What is the PLI scheme?
As part of the overall production-linked incentives (PLIs) announced for 13 sectors in the Budget 2021-22 with an outlay of ₹1.97 lakh crore, an amount of ₹26,058 crore was allocated for electric vehicles (EVs) to boost domestic manufacturing. The government expects the PLI scheme for the auto industry to bring fresh investments of over ₹42,500 crore in five years with an incremental production of over ₹2.3 lakh crore. The auto PLI scheme is also expected to create additional employment for over 7.5 lakh people. To avail of the incentives, auto manufacturers will be required to ₹2,000 crore of new investments over five years, whereas two and three-wheeler manufacturers will have to make investments of ₹1,000 crore. The component makers will have to make investments of ₹500 crore over five years. 115 automobile and auto component companies from India and abroad have filed applications under the PLI scheme so far. These include Maruti Suzuki, Tata Motors Group, TVS Motor, MG Motor, Bajaj Auto, and Hero MotoCorp.
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Jitesh Surjiani
Jitesh Surjiani is passionate about progressive change for India and its citizens. He writes about issues that are roadblocks in improving quality of life and interpersonal interactions as well as areas of public governance that fall short in intent and action.
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