India slashes import duty on EVs to smoothen Tesla’s market entry

India has slashed customs duty on import of ready-to-assemble automobiles, or CKD units, to 15 per cent for a period of five years, in a move that would help EV majors like Tesla enter the Indian market.

At present, such imports of cars are subject to customs duties varying from 70 per cent to 100 per cent, depending on their value.

The relaxation in import duty, however, is subject to the company setting up manufacturing facility in India, with a minimum investment of Rs4,150 crore ($500 million).

Such manufacturing facility has to be set up within three years, thereby starting up production of electric vehicles within India. Investors should also ensure product localisation of 25 per cent by the third year and ensure domestic value addition of at least 50 per cent within 5 years.

Imports of CKD units having a CIF value of $35,000 or above will be allowed. The total number of EVs that can be imported will be determined on the basis of the total duty foregone or the value of the capital invested, whichever is lower, subject to a maximum of Rs6,484 crore (equal to incentive under PLI scheme).

However, not more than 8,000 EVs per year would be allowed to be imported under this scheme. The unutilised annual import limit would be allowed to be carried forward.

Companies will have to provide a bank guarantee for the committed investment in lieu of the custom duty forgone. This bank guarantee will be invoked in case of non-achievement of domestic value addition and minimum investment criteria as per the scheme.

The new e-vehicle policy approved by the government is aimed at promoting India as a global hub for e-vehicle manufacturing by attracting investments by reputed global EV manufacturers.

This is also aimed at giving Indian consumers access to latest technology, besides strengthening the EV ecosystem by promoting healthy competition among EV players.

Tesla, which has been holding back its India plans as the existing policy in India did not facilitate selling and servicing of imported cars.

Tesla, as per reports, will be importing cars in CKD form from its Shanghai facility in China, except perhaps for the battery unit. Musk is also reported to be planning a sub-$25,000 model for India, which is cheaper than the lowest cost China model, which is priced at $32,000-33,000.