Tesla's $2bn investment in India hinges on government concessions
Tesla is considering a massive investment of up to $2 billion to establish a factory in India, but only if the government approves a 15% concessional duty on imported vehicles for the first two years of operation. According to an Economic Times (ET) report citing insiders, Tesla has submitted a detailed proposal that links the amount of investment to the number of cars it can import with reduced duty.
Investment details and government evaluation
The proposal indicates that Tesla could invest up to $500 million if the government allows a concessional tariff for 12,000 vehicles. This amount could rise to $2 billion if the reduced duty is approved for 30,000 vehicles. The Indian government is currently assessing the feasibility of Tesla's proposal and may limit concessional tariffs to 10% of total electric vehicles (EVs) projected to be sold in India in FY24 (10,000 units), with a 20% increase for the second year.
Localization commitment and proposal evaluation
Tesla has also proposed to localize up to 20% of the value of cars made in India within two years and increase that to 40% within four years. This proposal is being jointly evaluated by various Indian ministries, including the Department for Promotion of Industry and Internal Trade (DPIIT), the Ministry of Heavy Industries (MHI), the Ministry of Road Transport & Highways (MoRTH), and the Ministry of Finance, under the guidance of the Prime Minister's Office (PMO).
Import duties and potential car prices
Currently, India imposes a 100% import duty on cars with a cost, insurance, and freight value above $40,000, and 70% on vehicles below that price. If Tesla is granted concessional import duty, its Model 3 and Model Y could be priced at Rs. 38 lakh and Rs. 43 lakh, respectively, according to ET's report citing a person in the know.
Tesla's sourcing from India and government stance on incentives
Tesla has plans to source $1.7-1.9 billion worth of auto parts from India this year, an increase from $1 billion in FY23, as revealed by Commerce & Industry Minister Piyush Goyal during his visit to Tesla's US factory. The Indian government has clarified that any incentives offered to encourage local production of EVs will be the same for both foreign and domestic companies, with no specific exemptions for individual companies.
