India lowers EV import duty to attract Tesla investments

Jingyue Hsiao, DIGITIMES Asia, Taipei 0

Credit: AFP

India approved a reduction in EV import duty for companies setting up manufacturing facilities to attract foreign investments in the EV industry.

According to a statement published by the Press Information Bureau of India by the Ministry of Commerce and Industry of India, the country will reduce import EV import taxes from 70-100% to 15% if the EV importers meet certain requirements, which included minimum investments of US$500 million or INR41.5 billion.

Under the plan, manufacturers will have three years to establish production facilities and commence commercial operations, and achieve 50% Domestic Value Addition (DVA) within five years at most.

Manufacturers must hit a localization level of 25% by the third year of operation, rising to 50% by the fifth year. Importers meeting requirements can avail themselves of a 15% customs duty for imports of EVs valued at US$35,000 or more in a completely knocked down (CKD) form for five years.

India will cap the duty foregone on imported EVs at the investment made of INR64.84 billion, whichever is lower. A maximum of 40,000 EVs will be allowed for import, with an annual limit of 8,000 units, provided the investment exceeds USD 800 million.

The import duty change is seen as a move to attract global EV manufacturers to invest in India, particularly Tesla, which has expressed a strong interest in selling its cars in India since 2021 but cannot agree with the Indian government on the import taxes. Things began to change when the Indian Prime Minister Narendra Modi met with Tesla CEO Elon Musk during his visit to the US in June 2023.

Earlier, India imposed a 100% basic customs duty for EVs valued at over US$40,000 in the Completely-Built Unit (CBU) form and a 70% for those valued at less than US$40,000. For EVs in the Semi-Knocked Down (SKD) or CKD form, 35% and 15% import duties were imposed, respectively. Under the previous regime, the Tesla Model 3, sold at nearly US$39,000 in the US and not made in India, will be imposed with a 100% import tax before selling in India.

Local EV manufacturers in India are opposed to lowering import duties on EVs, and a cap of 8,000 per year to be eligible for the 15% import duty would alleviate the concerns of local EV manufacturers like Tata Motors.