India has announced a significant policy shift to reduce import taxes on electric vehicles (EVs) for companies willing to invest at least $500 million and commit to local manufacturing within three years. This decision is set to encourage Tesla and other EV manufacturers to establish a presence in the Indian market. To benefit from the reduced import duty of 15% on cars above $35,000, companies must also source at least 25% of their components domestically. Normally, India imposes a tax rate of 70% to 100% on imported cars based on their value.

The policy aims to support India’s goal of increasing EV adoption and decreasing oil import dependency, targeting 30% electric car sales by 2030. The government believes this move will lead to a host of benefits including access to the latest technology, support for the ‘Make in India’ initiative, cost reductions through economies of scale, and positive impacts on health and the environment due to reduced air pollution.

Companies investing $800 million or more will be permitted to import up to 40,000 EVs, capped at 8,000 units annually. Tesla, which has been seeking to enter the Indian market, may begin by importing EVs from its Shanghai plant and later move manufacturing and battery production to India. Analysts suggest Tesla could launch a sub-$25,000 model to compete with local manufacturers like Tata Motors and Hyundai, although capturing significant market share may be challenging due to India’s low average car price.

India’s position as a major sourcing hub for automobile components is growing, with Tesla aiming to double its sourcing to up to $1.9 billion in 2023. Other international players like Vietnam’s VinFast and China’s Geely-owned Lotus Cars are also looking to India for manufacturing opportunities. Despite the focus on attracting foreign EV manufacturers, India’s market is predominantly driven by two-wheelers and has strong local players that may resist the expansion of global companies.

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