Tesla revives import duty talks with India

Over a year ago, talks between the world’s largest-selling passenger EV maker and the Centre reached a stalemate as the government refused to consider its demand for lowering duties on imported electric cars unless it firmly committed to setting up a manufacturing facility in the country.

However, people with knowledge of the matter indicate that Tesla’s position is now less conservative than it was earlier, as the company explores manufacturing in various South East Asian regions that have emerged as significant electric car markets over the past decade.

Nonetheless, Tesla still requires an import duty exemption to properly assess both the demand for their vehicles and the feasibility of establishing a production plant in the region.

Historically, Tesla has never entered a new market via manufacturing before being able to launch its products and service network in it first. Most recently, the company has started to export its EVs to Malaysia, where it is also setting up a Supercharger network and experience centres.

“Tesla’s integrated manufacturing set-up, which is unlike any other OEM’s assembly-like operation, depends on visibility for large-scale demand, irrespective of the tariff regime in a country,” people with knowledge of the discussions told Mint.

Tesla is well-known for manufacturing all of its key electric components like batteries and motors, and software in-house.

For instance, Tesla has set up a giga factory in Germany despite it being a low-tariff nation because of widespread demand for the vehicles in the European nation and its surrounding countries, he added. “We cannot be certain what timelines Tesla is considering to set up manufacturing in India, but it will be some time away. The market and infrastructure in India need to develop as well.”

“Tesla’s renewing its talks with India at a time the forecast for growth in other markets is uncertain. The fundamentals of its earlier challenges in India remain the same, though it may be more flexible and practical in the conversations it is now having. Elon Musk has set out on an ambitious goal to achieve 20 million EV sales globally by 2030. To do that the company will need to set up more manufacturing capacity and tap demand in some of the world’s largest markets, of which India is a significant piece”, a person privy to Tesla’s India operations said.

“There is no discussion to be had with the government if it isn’t about negotiating lower duties. If the idea was to only manufacture, they’d just come and set up,” the person mention above added.

“The company had also made it clear when it was lobbying for an import duty cut with the government that it does not want a preferential duty waiver only for its own. It will welcome a move to lower tariffs for all stakeholders. Eventually, once foreign carmakers see enough demand for their EVs in India, they too will find it favourable to invest in local manufacturing. So, Tesla’s entry to India via the import-route won’t be a threat to Indian carmakers,” they said.

However, Tesla is intent on eventually setting up manufacturing in India and wouldn’t want to build an imports-led business in the country which is poised to become one of the largest markets for EVs by the turn of the decade.

In 2021, Tesla had brought in its Model 3 cars for testing in India. It is the EV maker’s cheapest offering in its portfolio, which comprises also of the Model S, Y and X. The Model 3 sells at a starting price of just over $40,000 in the US, and will attract duties of more than 100% if it is imported to India.

Tesla has set-up gigafactories in only two countries outside of the USA, in Shanghai in China, where the total passenger vehicle market is 27 million units annually and one in every four vehicles sold is an EV, and in Berlin-Brandenburg in Germany, which alone is an over 2.5 million units market with a nearly 20% EV penetration, but also serves other European nations with a high degree of EV penetration.

By contrast, both EVs and luxury cars form a very small percentage of the total passenger vehicle market in India. Luxury cars and passenger EVs each comprise close to 1% of the India’s 3.7 million unit passenger vehicle market. In contrast, Tesla’s largest market, the United States of America, is a nearly 14 million unit-strong market for PVs.