Changing scenario
The duty forgone on the import of vehicles is limited to the investment made or ₹6,484 crore (whichever is lower).
Mercedes EQS Audi RS e-tron GT*
38,990 43,990 53,195 74,990 104,400 147,100
What is the new EV policy?
The new policy slashes the import duty on electric cars in India that cost over $35,000 (₹29 lakh) from the current 70-110% to 15% for five years but comes with a number of caveats. The reduced tariff is valid only for 8,000 cars per year and can be availed only if companies make an investment of ₹4,150 crore or $500 million towards setting up a factory within three years. There is also a clause on domestic value addition –30% domestic value addition within three years going up to 50% by the fifth year. The duty forgone on the import of vehicles is limited to the investment made or ₹6,484 crore (whichever is lower).
4
Isn’t it unfair to existing players?
Chinese firms led by BYD, which overtook Tesla as the global leader in EVs in 2023, are looking closely at India. The policy makes no mention of it but though FDI in automobiles is under the automatic route, any investment from China requires an approval from the Ministry of Home Affairs. With that in place, Chinese firms do not stand to benefit from this policy.
The new policy puts the German troika of Mercedes Benz, BMW and Audi that lead the luxury car market in India in a spot as it does not account for past investments so they don’t stand to benefit from it, even as cheaper Teslas could potentially hit their business. In 2023, EVs formed 6% of volumes in the luxury car segment and Tesla can immediately expand and disrupt it. Unlike Tesla, the others don’t have plans of producing a cheaper car, so even if they fasttrack future investments they are likely to struggle to make the cut.
15 15 70 15 16.5 110
Tesla has been complaining about India’s high import duty tariff regime and lobbying for a timebound relaxation for it to test the market. The policy allows for that provided Elon Musk is ready to commit to making significant investments in India—a key demand from the government. The policy satisfies both sides. With its existing portfolio, Tesla is unlikely to achieve significant volumes in India to justify setting up a factory but it is planning to develop an affordable platform for a $25,000 (₹21 lakh) car for emerging markets using India as a hub. This policy is tailormade for that strategy.
Will it also result in an influx of Chinese companies? 5
0.39 0.44 0.73 0.75
How does it benefit Tesla? Will it hit the component sector?
It is unlikely. The policy mandates setting up a local factory with steep indigenization targets. The investments required to avail the 8,000 unit per annum import is large and means more cars will be produced locally after three years. The local component industry possibly stands to gain the most as Tesla and anybody else who comes in will have to work with them to set up their manufacturing units. This will also result in a significant step-up in R&D for local ancillary players and open-up possibilities of export business.