To Earn Import Tax Cut, Tesla Has to Buy Indian Parts Worth $500 Mn: Report

Tesla was not part of the 115 companies which applied for the PLI scheme to boost domestic EV manufacturing.

Elon Musk, the Chief Executive Officer of Tesla Inc. 

(Photo Courtesy: Twitter)

The central government wants Elon Musk's Tesla to commit to sourcing auto parts worth at least $500 million from India, before it considers the electric carmaker’s request for an import tax cut on its vehicles, Bloomberg reported.

While it could start at a lower base, Tesla would need to agree to ramp up local auto parts purchases by around 10 to 15 percent a year until they reach a satisfactory level, a source told the publication.

Tesla reportedly needs to have a component-sourcing plan that is proportional to its car sales forecast in India in order to get a tax cut. It must also export Indian components to China if it plans to import cars from there, the person said.

Tesla was not part of the 115 companies which applied for the production-linked incentive (PLI) scheme to boost domestic electric vehicle (EV) manufacturing, the Ministry of Heavy Industries revealed last week.

At least five politicians invited Elon Musk to set up shop in their respective states, after the Tesla chief executive officer (CEO) mentioned on Twitter that he was "still working through a lot of challenges with the government."

What 'Challenges' Is Tesla Working Through?

Tesla and the Modi government are at an impasse.

Musk wants the government to cut import duty, so that he can start selling cars and generate sufficient demand to justify building a manufacturing plant in India, while the centre wants Tesla to assemble cars in India from the get-go.

Elon's worries stem from the 100 percent tax that is currently imposed on imported cars worth more than $40,000 (Rs 30 lakh).

Tesla's cheapest offering (Model 3) costs more than that, if you include shipping costs. Even cars less than $40,000 are subject to 60 percent import duty.

NITI Aayog CEO Amitabh Kant, in December 2021, told Economic Times that the government was evaluating Tesla's proposal to reduce import duties and a decision would be taken "shortly."

A Look at India's EV Policy

The government's priority currently is to boost local manufacturing of EVs and related components.

It has rolled out a production-linked incentive (PLI) scheme worth Rs 26,058 crore to boost domestic EV manufacturing, generate new jobs, and encourage investment into the sector.

The Centre has also revised GST (Goods and Services Tax) for local EV manufacturers to 5 percent.

There's also another PLI scheme worth Rs 18,000 crore to manufacture advanced chemistry cells (ACC), that is, batteries to power EVs. Both local and global players can apply for these schemes.

The government's EV push is also reflected in the FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India) scheme, which subsidises certain EVs for buyers, and helps set up public infrastructure to support the transition.

However, there is currently no central government support for importing EVs into India.

(With inputs from Bloomberg and The Economic Times.)