The Indian government wants Tesla to acquire $500 million worth of local auto components in order to qualify for a tax break on imports. According to a recent report, the American automobile giant has been given the stipulation that it can begin buying local car parts at a lesser cost.

However, Tesla would have to agree to increase Indian parts purchases by 10 to 15 per cent each year until a sufficient level was reached, according to a person familiar with the matter, reported Bloomberg.

Prime Minister Narendra Modi's administration has publicly instructed Tesla to increase local sourcing, but has yet to provide the business with a procurement target, according to the source. Tesla stated in August that it had sourced $100 million in parts from the country.

This news comes after reports revealed that the Centre has turned down Tesla’s proposal for tax breaks to import the vehicles. According to a February report, senior government officials said that the decision was made because the automaker is requesting a tax reduction exclusively for bringing cars into India fully assembled, with no urgent or clear plans to set up a domestic manufacturing facility in the country.

An official stated: “Tesla wants customs duty cuts for imports. They are welcome to come and produce. But his argument is first I want to see how many people in India buy my vehicle. For that, he needs a lower customs duty…if there’s enough turnover I might come. It’s not a poor man’s car.”

“They are not producing a small EV equivalent for the middle class. They are producing a superclass car. Why should we give a Customs exemption? If you can afford it, please pay the duty and take it,” the official added.

The government has stated that it wants the American electric vehicle giant to build cars in the country, but this appears to be a ruse to secure benefits for the country's fledgling electric car industry. However, Elon Musk’s company has said that it intends to check the market demand by selling imported cars first, but tariffs as high as 100 per cent would have to be reduced to make that practical.

At this moment, India's auto sector is still dominated by low-cost gasoline vehicles, and sustainable transportation is still a nascent industry, with EVs accounting for only 1 per cent of all vehicles sold each year.

The source told Bloomberg that Tesla must approach the government with a component-sourcing strategy comparable to its car sales expectation in India in order to advance on its tax-cut bid. If it intends to buy automobiles from China, it should also export made-in-India components, according to the person.

As per Road Transport Minister Nitin Gadkari, India has had a long-running border issue with China, and last year urged Tesla to stop selling cars built in its Shanghai factory in India.

While Tesla has been at odds with the Centre, some Indian states did approach the automaker in January this year. At least five states have expressed interest in having Tesla build a factory in their states but the automaker hasn’t spoken about its plans yet.

However, in the case of Tesla’s competitors in India, including Ford India, Tata Motors, Suzuki, Hyundai, Kia, Bajaj, Ola and Mahindra & Mahindra, have been added included in Rs 25,938 crore production linked incentives Scheme (PLI Scheme).

The government recently announced the names of the companies that have been picked under the ‘Champion OEM Incentive Scheme’, which is a part of the PLI scheme. This particular list has names like — Ford, Ashok Leyland, Eicher Motors, Hyundai Motor India, Kia India, Mahindra & Mahindra, PCA Automobiles India, Pinnacle Mobility Solutions, Suzuki Motor Gujarat and Tata Motors Limited.