Tesla Ready To Invest $2 Billion To Set Up Factory In India If Govt Approves 15 Per Cent Concessional Duty On Imported Vehicles For First Two Years

Tesla, the American electric vehicle manufacturer, is reportedly prepared to invest as much as $2 billion to set up a local factory in India, provided the government grants a 15 per cent concessional duty on imported vehicles for the first two years of its Indian operations.

Tesla has approached the government with a detailed proposal linking the quantum of investment to the number of cars it can import at lower duty, Economic Times reported citing sources.

The automaker has expressed readiness to invest as much as $500 million if the government agrees to a lower tariff for 12,000 vehicles, and this could potentially increase to $2 billion if the concession is extended to 30,000 vehicles.

The government is reportedly examining the viability of the upper range of Tesla's proposal - the investment of $2 billion to set up a plant.

The government is considering a reduction in the number of vehicles that can be imported at a concessional tariff, a figure that is less than what the American automaker has proposed.

According to the ET report, the government is evaluating if concessional tariffs should be restricted to 10 per cent of the total EVs projected to be sold in India in the current fiscal year (10,000 units) and it can be increased by 20 per cent for the second year.

In the fiscal year 2023, around 50,000 electric vehicles were sold, and this number is projected to double to 100,000 in the fiscal year 2024.

Tesla could potentially pledge to localise as much as 20 per cent of the value of cars manufactured in India within a span of 2 years, and aim to boost that figure to 40 per cent within 4 years.

The evaluation of the proposal is a collaborative effort between the department for promotion of industry and internal trade (DPIIT), Ministry of Heavy Industries (MHI), Ministry of Road Transport & Highways (MoRTH), and the Ministry of Finance. This process is being conducted under the supervision of the Prime Minister's Office (PMO).

India levies a 100 per cent import tax on vehicles with a cost, insurance, and freight value exceeding $40,000, while cars priced lower than this are subjected to a 70 per cent duty.

Moreover, the government may require a bank guarantee tied to the capital commitment to recover losses due to import duty, should the US car manufacturer fail to allocate funds as committed.

Tesla has plans to initiate its operations in India with three models - the Model 3, Model Y, and a fresh hatchback. The respective prices in the US for these vehicles are $39,000 (Rs 32.37 lakh), $44,000 (Rs 36.52 lakh), and $25,000 (Rs 20.75 lakh).

Should concessional import duty be approved, the Model 3 and Model Y are expected to be priced at Rs 38 lakh and Rs 43 lakh respectively in India.

Bloomberg reported on 21 November that Tesla might invest $2 billion in India.

According to senior government officials cited in the ET report, preliminary talks with Tesla executives took place recently. "Wherever Tesla sets up a base, it does so with its entire supplier base. So, the investments are significant. They already source from some component makers here," a person aware of the development was quoted by ET as saying.

However, sources cited in the ET report said that discussions were ongoing, and details could change.

During his recent visit to Tesla's factory in the US, Piyush Goyal, the Minister for Commerce & Industry, stated that Tesla plans to procure auto parts from India worth between $1.7 and $1.9 billion this year. This represents a significant increase from the $1 billion worth of parts sourced in the fiscal year 2023.

In a separate statement, the central government clarified that any incentives provided to encourage local manufacturing of electric vehicles would be equally available to both foreign and domestic manufacturers. This comes in response to concerns voiced by Indian automakers over potential import duty concessions to the American carmaker.

New Delhi expressed its disapproval towards exemptions specific to any company.

"The government's approach is for the industry as a whole and not for any specific company because we have very strong domestic companies in this sector," said an official.

The official added that any incentives offered will be equal for domestic and foreign investors.