Import duty reduction in India essential for Tesla to assess market potential

Tesla had highlighted last month that a major blockade for sales in India is high import duties. Vehicle imports of all categories, including electric vehicles (EVs) attract 60% import duty for vehicles under US$40,000 and 100% for vehicles above it, which is highest in the world. Therefore, reduction of import duties is important for Tesla to assess market potential, says GlobalData, a leading data and analytics company.

Although Tesla got registered as a business in India last year, further developments seem to be at a standstill currently following the differences between the company and the Indian government. However, recent media reports suggest that following Tesla’s lobbying, India is considering to cut the duties on complete-built units (CBU) electric cars – an important milestone, if achieved.

Bakar Sadik Agwan, Senior Automotive Analyst at GlobalData, comments: “While most governments globally are incentivizing every sales channel that boosts EVs, import duties in India are the highest in the world and seems a bit ‘unfair’ to Tesla as well as misaligned to India’s climate change/vehicle electrification goals.”

India too has its EV ambitions and has fast-tracked efforts to develop the local market with attractive supply-side and demand-side incentives via centre’s policies such as FAME and various state policies. However, the government has been dismissive of allowing the imports and focusing largely on developing a ‘local’ market.

Mr. Agwan continues: “The Indian government potentially wants Tesla to ‘Make in India’ – may be a small assembly line with mix of semi-knocked down (SKD) imports and local procurement. But for Tesla, which works on an export-based business model in new markets, setting up a local production/assembly line pre-hand will be a challenge and does not make an economic and strategic sense until it gets an understanding of the domestic market demand volumes. CBU import looks like the last resort to ‘try and test’ the domestic market.”

Entry in India means that Tesla still needs to make substantial investments in charging infrastructure, sales and service. High import duties that eventually make Tesla cars ‘unaffordable’ set to risk the company’s investments. Building a production/assembly unit for the local market pre-hand may also have the same fate if volumes are insignificant. The company has reportedly promised more investments and increased local procurement of components following tax breaks on the imports. However, reports suggest that the India needs a clear commitment from Tesla on local manufacturing and procurement in lieu of reduced import duties.

Mr. Agwan concludes: “Tesla is potentially eying a market entry strategy like China, where it tried and tested its products through imports and later built a production plant following the success of its vehicles. Tesla’s demand for the tax cut is quite reasonable and should not be a major challenge for the Government of India as the import volumes of EVs is quite limited now. Furthermore, Tesla’s entry will charge up the EV market in the country and help the government to get closer to its electrification targets.

Credits: GlobalData Media Centre