India Considers Tesla’s Tariff Reduction Request, Says Report

Unnamed Indian government officials, who are familiar with ongoing discussions, have revealed that the country is contemplating Tesla’s request for lower tariffs on imported electric vehicles. This consideration aligns with Tesla’s exploration of establishing a manufacturing plant in the country, reports The Financial Times.

According to two officials knowledgeable about the matter, Tesla has approached New Delhi seeking an initial tariff concession. This request aims to mitigate India’s substantial customs duty, which currently stands at 70% for cars valued under $40,000 and 100% for those over $40,000. “Their view has always been that they need some tariff concessions at least in the interim period,” one official stated, mentioning a potential sunset clause in the concession.

Tesla’s request for tariff reduction is a precondition for setting up a production facility in India. The proposed reduced tariff rate under consideration is 15% for EVs of all prices. However, this policy has not yet received approval within the Indian government. “We want to create a package which is good for India and which doesn’t become a curated package for one company,” an official commented, emphasizing that the scheme would be open to all EV manufacturers, subject to certain requirements.

Tesla executives have engaged in discussions with Indian government officials multiple times over the past year. During a state visit to the US in June, Prime Minister Narendra Modi met with Elon Musk in New York and encouraged Tesla to consider India as a manufacturing base.

In a related development, India’s Commerce Minister Piyush Goyal is scheduled to travel to San Francisco for the Indo-Pacific Economic Framework for Prosperity and the Asia-Pacific Economic Cooperation forum. An Indian official indicated that Goyal might meet with Musk during this visit.

Tesla’s potential investment in India represents a bold yet challenging move. India’s EV market, primarily focused on two-wheel vehicles, is still in its nascent stages. For success, any automobile introduced must be competitively priced in the world’s largest developing market. Tesla has proposed manufacturing a vehicle under $30,000 in India, which could be sold domestically and potentially exported.

If Tesla establishes a factory in India, it would be their sixth vehicle plant, including the upcoming facility in Mexico. This expansion would mark Tesla’s entry into a significant market predominantly occupied by lower-cost vehicles. Musk has previously hinted at producing a more affordable model than the $39,000 Model 3, tentatively named Model 2.

This expansion is part of Tesla’s broader strategy to increase its global factory presence, aiming for an unofficial target of producing 20 million cars annually by the end of the decade. This goal would position Tesla ahead of current industry leaders Toyota and Volkswagen.

India’s consideration of Tesla’s request comes amidst efforts to narrow the gap with China, its northern neighbor and rival, in developing EV and semiconductor technology. The high tariffs on motor vehicles in India, designed to encourage local production, have been a persistent challenge for foreign automakers. The UK is also pressing India to reduce car tariffs as part of ongoing free trade agreement negotiations.