After the Union Government conclusively turned down a demand for import duty cuts by US-based Tesla Inc. and the Texas-based electric vehicle maker subsequently moved ahead to shelve its India debut plans back in mid-2022, there are now signs of renewed activity.
While the specific details are still under wraps, what is clear is that Tesla seems to have communicated a change in stance: dropping its demand for an upfront cut in import duties as a precondition to considering manufacturing in India. And a Tesla team, including some of its supply chain executives from the US, we’re in India and have held meetings with key nodal union ministries here.
The change
Nothing has changed in the government’s position with respect to the import duty cuts, an official with one of the nodal ministries handling the case told. If at all there is a change, it is on Tesla’s side, given that the company now seems willing to discuss manufacturing in India without putting across the import duty cuts as a precondition. And if presented with a coherent plan by the electric vehicle maker for domestic manufacture of cars, there is a likelihood that the government could consider some sops that could incentivise phased manufacturing.
This could include some concessions on duties, depending on the domestic manufacturing plan. Some tweaks on the PLI scheme could be in the offering, among other concessions.
Senior government officials indicated that the car manufacturer’s earlier demand for a duty cut was seen as a precondition, that too only for importing cars into the country as fully assembled units, without any immediate or firm proposal to set up a domestic manufacturing facility in India.
The view then, and now, is that any concession on the import duty side has to be offered to everybody as an across-the-board cut, instead of concessions to just one player, a government official said. This is even more crucial given that India is currently negotiating free trade agreements with other countries and trading blocs, including the European Union and the UK, which have a competitive car manufacturing sector and negotiations include a demand for lowering of import duties.
Import duties in India
Tesla had, in 2021, written to nodal central ministries seeking a reduction in import duties on fully assembled cars. Currently, customs duty ranging from 60 to 100 per cent is levied on cars imported as completely built units (CBUs), depending on the engine size and cost, insurance and freight (CIF) value less or above $40,000. For those costing $40,000 or more, the duty is 100 per cent while the duty on cars costing below this is 70 per cent. Tesla had asked for these duties to be cut to 40 per cent or lower.
In response to Tesla founder Elon Musk’s tweet early last year that claimed that challenges with the Indian government were proving to be a hindrance in the launch of Tesla’s electric cars in India, several state government representatives lined up with invitations to the billionaire to set up shop in their respective territories.
States vying for investments
There are multiple states that responded to Musk’s tweet on January 13 last year, where the billionaire, replying to a Twitter user urging the launch of Tesla vehicles in India, said: “Still working through a lot of challenges with the government”. The day after that, Telangana Cabinet Minister KT Rama Rao tweeted: “Hey Elon, I am the Industry & Commerce Minister of Telangana state in India. We will be happy to partner with Tesla in working through the challenges to set up shop in India/Telangana. Our state is a champion in sustainability initiatives & a top-notch business destination in India”.
Hey Elon, I am the Industry & Commerce Minister of Telangana state in India
Will be happy to partner Tesla in working through the challenges to set shop in India/Telangana
Our state is a champion in sustainability initiatives & a top notch business destination in India https://t.co/hVpMZyjEIr
— KTR (@KTRBRS) January 14, 2022
The same day, West Bengal’s Minister of State for Minority Affairs & Madrasah Education tweeted: “Drop here, we in West Bengal have best infra & our leader @MamataOfficial has got the vision. Bengal means Business…” Officials in Maharashtra and Punjab too responded to Musk’s tweet, soliciting investments from the company in their respective jurisdictions.
Tesla’s India set-up
Tesla India Motors And Energy Private Limited had been incorporated as a private company in January 2021 and is technically classified as a subsidiary of a foreign company. It is registered with the RoC, Bangalore with an authorised share capital is Rs. 50 crore and a paid-up capital of Rs 35 crore. The company’s directors include its India head, Prashanth Ramanathan Menon, and David Jon Feinstein, according to RoC records.