India considers slashing EV tariffs to lure Tesla

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

India is considering a request from Tesla to lower tariffs for imported electric vehicles, according to Indian government officials, as Elon Musk’s company explores setting up a plant in the country.

Tesla has asked New Delhi for an initial tariff concession that would allow it to offset India’s steep customs duty of 70 per cent for cars worth less than $40,000, and 100 per cent for cars worth $40,000 or more, according to two officials with knowledge of the matter.

“Their view has always been that they need some tariff concessions at least in the interim period,” one of the officials said. He added: “It would have some kind of sunset clause.”

Tesla had requested the concession as a precondition to building a plant in India. The lowered tariffs would apply to all EV makers.

The officials said the reduced rate under consideration would be 15 per cent for EVs of all prices, but added that the policy had not been agreed within India’s government yet. 

“We want to create a package which is good for India and which doesn’t become a curated package for one company,” one of the officials said of the proposed EV scheme. “Others are free to take advantage of this window, subject to meeting these kinds of requirements.” 

Tesla executives have met Indian government officials at least three times in the past year. In June, Prime Minister Narendra Modi met Musk in New York during a state visit to the US and asked him to consider India as a manufacturing base. 

Piyush Goyal, India’s commerce minister, is set to travel to San Francisco this coming week to attend meetings of the Indo-Pacific Economic Framework for Prosperity, a US-led scheme, and the Asia-Pacific Economic Cooperation forum, a summit being held in San Francisco this week where there is expected to be a rare meeting between the US and Chinese presidents. One Indian official said that Goyal may meet Musk while there. 

A bet on India would be a bold but risky one for Tesla. India’s EV market is in its early stages and focused largely on two-wheel vehicles, and any automobile would need to be competitively priced to gain traction in the world’s largest developing market. 

In their talks with India’s government, Tesla said it could make a vehicle for less than $30,000 that the company would sell in India and potentially export to the rest of the region, using the country as a production hub. 

Tesla did not immediately respond to a request for comment.

An Indian factory would be Tesla’s sixth vehicle plant — including its upcoming Mexico facility — and mark an expansion into a vast car market that is dominated by lower-cost vehicles. Musk previously suggested Tesla would make a cheaper model than its $39,000 Model 3, which is provisionally called the Model 2. 

The electric-car maker is expanding factories globally as it heads towards an unofficial target of making 20mn cars a year by the end of the decade — an ambition that would see it become larger than current industry leaders Toyota and Volkswagen combined. 

India is looking to narrow the commanding lead held by China, its wealthier northern neighbour and geopolitical rival in developing EV and semiconductor technology.

India’s high tariffs on motor vehicles, meant to boost local production, have been a lingering issue for foreign carmakers, and the UK is pressing it to cut car tariffs as part of the two countries’ talks on a free trade agreement.