For Tesla Inc.’s request for an import tax decrease on its vehicles to be considered, the electric carmaker would have to commit to sourcing at least $500 million in auto components from India, according to a source familiar with the government’s thinking.
While it might start at a lesser level, Tesla would have to commit to increasing Indian parts purchases by 10% to 15% each year until a satisfactory level was reached, the source said, declining to be identified because the talks are private. Prime Minister Narendra Modi’s administration has publicly instructed Tesla to increase local sourcing, but has yet to provide the business with a procurement target, according to the source.
Tesla stated in August that it had sourced $100 million in parts from India.
The government has stated that it wants the EV pioneer to build cars in the country, but this appears to be a ruse to secure benefits for the country’s fledgling electric car industry. Tesla says it intends to test the waters by selling imported cars first, but tariffs as high as 100% would have to be reduced to make that practical. India’s auto sector is still dominated by low-cost gasoline vehicles, and sustainable transportation is still a nascent industry, with electric vehicles accounting for only 1% of all vehicles sold each year.
According to the individual, Tesla must approach the government with a component-sourcing strategy comparable to its car sales expectation in India in order to advance on its tax-cut bid. If it intends to buy automobiles from China, it should also export made-in-India components, according to the source.
Requests for comment from Tesla and a representative from India’s Ministry of Transport were not immediately returned.
Tesla CEO Elon Musk tweeted in July that India’s import taxes were among the highest in the world, and that the country treats clean-energy vehicles the same as gas-guzzling automobiles, which is incompatible with the country’s aim of carbon neutrality. According to Road Transport Minister Nitin Gadkari, India has had a long-running border issue with China, and last year urged Tesla to stop selling cars built in its Shanghai factory in India.
India denied Tesla’s request for lower import duties earlier this month, claiming that existing laws already allow partially-built vehicles to be imported and subsequently completed locally at a lower cost. Imported electric vehicles are subject to up to 100% taxation, while parts transported for assembly in the country are subject to import charges ranging from 15% to 30%.
