Earlier in March last year, the Government of India was seriously considering slashing tariff duties for fully imported electric vehicles (EV) from 110% to 15%. This follows Prime Minister Narendra Modi's recent trip to the United States, where he met with Tesla founder and CEO Elon Musk and President Donald Trump.
India's New EV Policy
With PM Modi’s visit to the US last week discussing high tariffs India charges & Tesla’s much-anticipated entry into the Indian market, it comes as no shock that the government is announcing a new EV policy after India-US negotiations.
Import taxes for luxury EVs costing more than $35,000 will be lowered from the current 110% to 15% under the proposed framework, assuming manufacturers reach certain production and investment targets.
Following the notification of the updated policy, expected by mid-March, the government plans to start accepting applications. Approvals are anticipated to be granted by August, with imports set to commence shortly thereafter.
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Rs. 4150 Crores Investment Required
The anticipated new EV policy was initially announced in March of the previous year when customs duties were lowered to 15% under certain conditions. According to the original policy, manufacturing facilities were to be established with a minimum investment of Rs 4,150 crore, with production expected to start within three years. Additionally, businesses need to contribute 25% of their domestic value within three years and 50% within five.
Annual Turnover Targets
Within 120 days of the new EV policy's official introduction, EV producers who meet the requirements must submit their applications. Up to 8,000 luxury electric vehicles can be imported annually at the reduced duty rate by approved applicants.
By the second year, manufacturers must reach a turnover of Rs. 2500 crores, which will gradually rise to Rs. 5000 crores by the fourth year and Rs. 7500 crores by the fifth.
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Will This Benefit Tesla?
Ahead of Tesla’s India launch, this EV policy is in the company’s favour. Tesla CEO Elon Musk has long been hesitant to establish a production site. Musk and Tesla must promise the Indian government that they will establish a manufacturing site within three years of the company's arrival in India in order to receive benefits from the potential new EV legislation.
As of now, Tesla seems reluctant to the idea of setting up a production facility on Indian soil. Moreover, earlier this week US President Trump expressed his disappointment on the possibility of Tesla establishing a facility in India and called it “unfair”.
In a recent interview with Fox News, Trump was quoted saying, “Now, if he built the factory in India, that’s okay, but that’s unfair to the US. It’s very unfair.”
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Implications for the Indian EV Market
It is believed that the government's push for EV adoption through this policy will increase accessibility to high-end EVs for Indian consumers, attract investment in local manufacturing, and open doors for global players. The policy's approval letters could be issued as early as July or August, which might hasten the arrival of imported EVs on Indian roads.
Overall, even if the goal of the strategy is to increase local manufacturing and draw in investment, its effectiveness will rely on how quickly companies adjust to the deadlines and standards.
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