Tesla's $2 billion investment in India depends on tax cuts

27 November 2023

Tesla's eyes are once again set on the Indian market, with a potential multi-billion-dollar investment in the offing. However, this move depends on a crucial factor: the reduction of import taxes on electric vehicles. Tesla's Indian venture has been a recurring theme, but the road to realization seems to be paved with hurdles, particularly in the form of import duties that could make or break the deal.

According to a report by Economic Times, Tesla is contemplating a substantial investment of up to $2 billion to establish a manufacturing presence in India. This decision, though, hangs precariously on the fate of import taxes imposed on electric cars. Currently, the import tax structure in India places a substantial burden on buyers of imported EVs, with rates as high as 100% for cars priced above the equivalent of approximately $40,000. Even the more affordable electric cars are not spared, facing a tax rate of 70%.

The proposed solution on the table is a 15% import tax for EVs. If this tax rate is accepted, and it applies to a minimum of 12,000 vehicles annually, Tesla could commit an investment of $500 million to India. However, if the import volume scales up to 30,000 vehicles or more, Tesla's investment could soar to a staggering $2 billion.

While official statements remain few and far between, unofficial sources hint that the Indian government is actively considering the proposition. This could be a significant turning point for India's electric car market, one that's currently experiencing substantial growth.

But what form might this Tesla factory take in India? A $2 billion investment might not suffice for a massive electric car manufacturing plant like those in Shanghai, Germany, or Texas. It's possible that Tesla's Indian venture could manifest as a final assembly site or a production facility for specific components. The precise nature of the factory remains a mystery, waiting to be unveiled.

What's worth noting is that the 15% import tax, if implemented, would likely apply to all manufacturers seeking to invest in India's growing EV market. This could potentially lead to a wave of foreign investments, further intensifying competition on Indian soil. Domestic giants like Tata Motors and Mahindra, the leading Indian EV manufacturers, would face heightened competition on their home turf.

Tesla's potential $2 billion investment in India is hanging in the balance, contingent upon the Indian government's decision regarding import taxes for EVs. If the proposed 15% import tax becomes a reality, it could pave the way for Tesla's substantial investment in the country, while also opening the doors for more foreign manufacturers to enter India's EV market. Will the Indian government budge? Or will it stay its course and keep high taxes in the hope of protecting local manufacturers?

Via