Why isn’t India fulfilling Elon Musk’s wish for a duty cut?

When will the wait end?
When will the wait end?
Image: REUTERS/Tingshu Wang/File Photo
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Tesla CEO Elon Musk has been seeking lower import duties on electrical vehicles (EVs) in India, but so far to no avail.

The Narendra Modi government wants the US carmaker to manufacture in India as a precondition to easing duties. But Tesla’s shown no inclination to oblige. Thus, the delay in its India debut.

Industry players justify the government’s stance saying Tesla’s not offered to facilitate the development of India’s domestic EV industry, something the government will always prioritise.

“…the government has to incentivise local EV manufacturing in India especially after the ‘Make in India’ campaign and issues related to heavy dependency on Chinese manufacturers that we witnessed during the Covid-19 pandemic,” said Mohit Yadav, co-founder of EV infra firm BOLT.

Why Musk’s demand doesn’t help India

For the past three years, Musk has been citing the same reason for not launching sales in India: the world’s highest import duties.

India levies a 60% import tax on EVs priced up to $40,000 and 100% on vehicles above that. These rates, Tesla argues, will make its cars unaffordable.

For instance, in the US, a Tesla model will cost around $44,690 (34 lakh rupees); with a 100% import duty, a buyer in India will have to shell out at least Rs60 lakh for the same car.

The government’s unwillingness to budge also stems from the fact that the share of luxury cars is already low in India, not to speak of luxury EVs. Luxury car sales account for a mere 2% of overall passenger vehicle sales in the country.

On the other hand, the chorus to reduce duties has also been growing. Besides Tesla, firms like Hyundai and Audi, too, have sought a similar move to generate demand for EVs.

Will Tesla ever make in India?

Tesla’s unwillingness is a sore point for prime minister Narendra Modi’s flagship Make in India programme. But is it really impossible for Tesla to manufacture cars in the country?

India lacks critical raw materials such as lithium, cobalt and nickel, which are used to make lithium-ion (Li-ion) battery cells. Indian manufacturers, so far, have been relying on imports of battery cells from China, Japan, Korea, and Taiwan, and assembling them in the country.

Though the government has announced schemes that will encourage manufacturers to invest in the country, the process will take time to bear fruit.

“Setting and ramping up hardware manufacturing takes time and doesn’t happen overnight unlike software,” Yadav said.

Till then, India may remain a gloomy sight for companies like Tesla.