A major regulatory roadblock has been cleared for Tesla as it plans to expand its presence in South Asia. India, the world’s third-largest passenger vehicle market behind China and the U.S., has agreed to lower its punitive tariffs on certain imported electric vehicles, its commerce ministry announced today.
India imposes up to a 100% import duty on cars manufactured overseas. That means the standard range Tesla Model 3, which starts at $38,990 in the U.S. would cost over $77,000 in India under the current regulations.
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Tesla always wanted to go global.
Tesla CEO Elon Musk has expressed his desire to expand the automaker's presence globally several times. At one point Musk also wanted to enter Russia, but later called off that operation due to the war in Ukraine. Outside the U.S., Tesla has plants in Berlin and Shanghai. A Mexico gigafactory is under construction and now India just cleared a big regulatory hurdle for the automaker to enter.
These rules have now been relaxed for electric cars as long as automakers invest at least $500 million in local manufacturing. This threshold is much lower than what Tesla was earlier ready to commit, about $2 billion if import taxes were lowered for the first few years.
Asia’s third-largest country will lower import tariffs to 15% if certain conditions are met. They include setting up a local manufacturing facility in three years and reaching 50% “domestic value addition” in five years—to promote localization at an increasing rate in that timeframe.
Only 8,000 EVs would qualify for the lower 15% import tariff annually, and automakers will have to back up their investment with a bank guarantee, the commerce ministry said. Local players like Tata Motors and Mahindra & Mahindra have been lobbying against this move, fearing hurting their own businesses.
But the commerce ministry said that the new rules would “strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale, lower cost of production, reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment."
"It's quite likely that there will be a significant investment relationship with India in the future. Tesla will be in India as soon as humanly possible," CEO Elon Musk said last year in New York City where Indian Prime Minister Narendra Modi arrived for an official state visit. The two also met on the sidelines and courted each other to build a partnership.
According to IQAir data, six of the world’s 10 most polluted cities are Indian. Just like the U.S., India’s transportation sector emits a big chunk of its total carbon emissions.
However, India says this policy isn’t targeted at any one particular company. "We invite global companies to come to India. I'm confident India will become a global hub for EV manufacturing and this will create jobs and improve trade," Commerce Minister Piyush Goyal told reporters at a press briefing, Reuters reported.
Tesla already has an office in India in the city of Pune (which also happens to be yours truly’s hometown), but now it would need a strong management team on the ground to clear the local regulatory steps and accelerate its manufacturing goals.
It's unclear which models Tesla will initially import to India and later manufacture. But the smallest and the cheapest would make the most sense, like the Model 3 and the Model Y, and also the upcoming "Redwood" project, which is rumored to be called the Model 2.
Three years to build a plant may seem adequate, as Tesla got Giga Shanghai up and running in just ten months—that plant is Tesla’s largest globally by manufacturing capacity. Beyond the U.S. and China, Tesla also has a factory in Berlin, and another one is under construction in Mexico.
However, Elon Musk’s company has a limited presence in the BRICS nations, apart from China of course. India, the world’s most populated country with over 1.4 billion people, has a burgeoning middle class, and a booming tech industry. If its India plant ever materializes, it could become an export hub as several global tech giants look for a "China plus-one" strategy in Asia.
Correction: A previous version of this article misstated the Tesla Model 3's U.S. price. The Model 3 starts at $38,990 as of March 15, 2024. $33,990 is after probable tax credits.
