Amid Talks With Tesla, India Weighs 5-Year Tax Cuts On EV Imports

India is contemplating a five-year tax cut on the imports of fully assembled electric vehicles (EVs) as part of ongoing discussions with companies such as Tesla Inc., aiming to encourage sales and domestic manufacturing of electric cars within the country.

Government sources have revealed that India is formulating an electric vehicle policy that would enable international automakers to import electric vehicles with reduced duty rates, provided they commit to establishing local manufacturing facilities in the future. While the specifics of the policy are yet to be finalized, insiders, who preferred to remain anonymous due to the private nature of the talks, disclosed that discussions are underway. Spokespeople from India’s heavy industries and commerce ministries have not responded to email inquiries seeking comment.

In 2021, Tesla, headquartered in Austin, had sought a reduction in import duties for electric vehicles, aiming to bring the rates down from the existing 70%-100% range to 40% based on the import value of its vehicles.

Elon Musk, Tesla’s CEO, is anticipated to meet with Trade Minister Piyush Goyal later this week to discuss the company’s plans to establish a manufacturing facility in India. Minister Goyal is currently in San Francisco for ministerial engagements related to the Indo-Pacific Economic Framework and the Asia-Pacific Economic Cooperation.

Tesla is keen on entering one of the world’s most promising automobile markets, where demand for electric vehicles is increasing, especially among the growing middle class. For India, Tesla’s investment could contribute to the government’s objectives of boosting manufacturing in the GDP and creating employment opportunities.

Despite the increasing interest in electric vehicles, India’s electric car market is still in its early stages, accounting for only 1.3% of total passenger vehicles sold last year, according to BloombergNEF. Challenges such as high car costs, limited options, and a lack of charging infrastructure have hindered the widespread adoption of EVs.

Facilitating the entry of electric vehicles into the market could expedite the shift towards cleaner transportation in a country grappling with severe air pollution. In 2021, the government initiated a $3.1 billion incentive program to stimulate local EV production.

In a parallel development, India is also contemplating a reduction in import taxes on select electric vehicles from the United Kingdom as part of ongoing negotiations for a free-trade agreement.