US electric carmaker Tesla is willing to invest up to USD 2 billion for setting up a local factory if the government approves a concessional duty of 15% on imported vehicles during its first two years of operations in India.
According to sources aware of the matter, Tesla has approached the union government with a detailed proposal linking the quantum of investment to the number of cars it can import at lower duty. The company is willing to invest up to USD 500 million if the government extends concessional tariff for 12,000 vehicles and can increase this up to USD 2 billion if the reduced duty is approved for 30,000 vehicles. People close to the development said the government is examining the viability of the upper range of Tesla’s proposal – the investment of USD 2 billion to set up a plant.
Bank guarantee
The government also wants to reduce the number of cars that can be imported at a concessional tariff, compared to the numbers proposed by the American carmaker. It is evaluating if concessional tariffs should be restricted to 10% of the total EVs projected to be sold in India in the current fiscal year (10,000 units) and it can be increased by 20% for the second year.
Around 50,000 EVs were sold in FY23 and this is expected to go up to 100,000 in FY24.
Tesla may commit to localise up to 20% of the value of made-in-India cars in 2 years and increase that to 40% in 4 years.
The proposal is being jointly evaluated by the department for promotion of industry and internal trade (DPIIT), ministry of heavy industries (MHI), ministry of road transport & highways (MoRTH) and the ministry of finance under the guidance of Prime Minister’s Office (PMO).
Emails sent by ET to Tesla and the ministry of commerce & industry seeking comments remained unanswered at the time of going to press Thursday.
India imposes 100% import duty on cars with cost, insurance, and freight value of more than USD 40,000, and 70% on vehicles cheaper than that.
Further, the government may require a bank guarantee linked to the capital commitment to recoup loss on account of import duty if the US carmaker does not deploy funds as committed. The Austin, Texas-based company is requesting the government not to insist on a bank guarantee, the sources cited said.
Tesla is planning to commence India operations with three vehicles – the Model 3, Model Y and a new hatchback, priced at USD 39,000 (Rs 32.37 lakh), USD 44,000 (Rs 36.52 lakh) and USD 25,000 (Rs 20.75 lakh), respectively, in the US.
According to a person in the know, the Model 3 and Model Y are likely to be priced at Rs 38 lakh and Rs 43 lakh in India if concessional import duty is granted.
A possible investment of USD 2 billion by Tesla was reported by Bloomberg on November 21. Details of Tesla’s proposal as well as the government’s thinking on the matter have not been previously reported.
Senior government officials said an initial round of discussion took place with executives from Tesla recently. “Wherever Tesla sets up a base, it does so with its entire supplier base. So, the investments are significant. They already source from some component makers here,” said a person aware of developments.
The sources cited said that discussions were ongoing, and details could change.
Tesla is looking to source USD 1.7-1.9 billion worth of auto parts from India this year, up from USD 1 billion in FY23, minister for commerce & industry Piyush Goyal said recently during his trip to Tesla’s factory in the US.
Separately, the central government has said any incentive extended to facilitate local production of electric vehicles will be the same for foreign and domestic players, amid concerns raised by automakers in India over possible concessions in import duty to the American carmaker.
New Delhi said it is not in favour of any company-specific exemptions. “The government’s approach is for the industry as a whole and not for any specific company because we have very strong domestic companies in this sector,” said an official, adding that any incentives offered will be equal for domestic and foreign investors.
