Tata wants Delhi not to lower tax on EV imports

Tata Motors is pressing Indian officials not to lower import taxes of 100% on electric vehicles (EV) and to the protect domestic industry and its investors, as the government reviews Tesla’s plans to enter the market, people with direct knowledge say.

As India tries to boost domestic manufacturing and EV adoption, Tesla is proposing to set up an Indian factory, but is demanding lower import taxes for electric cars.

India is working on a new policy to cut import taxes on EVs to as low as 15% for companies that commit to some local manufacturing. The policy could allow Tesla to set up its India factory to make its proposed $24,000 car, while importing its more expensive models with lower tax.

Tesla’s strategy is a departure from its failed plan in 2022 when it just pushed India to lower duties.

In meetings with Prime Minister Narendra Modi’s office and other departments, Tata has opposed the plan, arguing that its investors made decisions assuming the tax regime favouring locals will remain unchanged, two sources with knowledge of talks said.

Tata and Modi’s office did not respond to requests for comment.

Tata is also arguing that India’s EV players need more government support in the early growth stage of the industry, pointing to imported petrol or diesel cars, which are still taxed at up to 100% despite the industry being well developed, said the first source.

“Lower duties will hit the entire [domestic] industry,” the person said, adding “the investment climate will get vitiated”.

Tata, one of India’s biggest carmakers, started its EV business in 2019. Private equity firm TPG and Abu Dhabi state holding company ADQ invested $1bn in 2021, valuing the EV business at about $9bn. The second source said lower duties for foreign players could risk future fundraising.

India’s EV market is small, but 74% of the 72,000 electric cars sold so far this year are made by Tata.

Tesla, which is losing share in an increasingly crowded US market, has its sights set on the potential of India’s car market. It is one of the world’s biggest, with more than 3-million cars sold each year. EVs still account for a tiny share in India, but Modi’s government is promoting the use of clean cars and the sector is rapidly growing.

Modi has been directly overseeing talks with Tesla since his meeting with CEO Elon Musk in New York in June.

The domestic car industry lobbied hard against Tesla’s previous plan for India to lower taxes and succeeded, with a Tata Motors executive saying in late 2021 the move would run “contrary” to the government’s Make in India push.

Another Indian player, Mahindra & Mahindra, which has raised about $400m from Singapore’s Temasek and British International Investment, has also raised concerns with officials about the lower EV tax plan, said a third source, a senior federal official involved in policymaking.

Mahindra declined to comment.

New Delhi, said the third source, is trying to soothe the concerns of local carmakers, but India remains determined to make entry into the EV sector easier for foreign players to help meet its goals.

Modi wants 30% of annual car sales in India to be electric from 2030 compared with the current 2%. Charging infrastructure is in its infancy too.

“We will come out with a policy that addresses everyone’s fears,” said the official, adding that one option is to lower import taxes only above a certain price point.

India’s current EV import tax of 100% is for cars priced above $40,000 — which applies to most Tesla models. Tata has three EV offerings priced from $10,400 to $24,000.

“If India needs to be an EV hub, we need more manufacturers ... Local industry need not fear that Tesla or anyone else will wipe them out,” said the Indian official.

India’s talks with Tesla come as other countries are courting the US giant. This week, Thai prime minister Srettha Thavisin said he showed Tesla executives around as they are looking for land, saying he is confident the company will invest in the country.