5 States Have Invited Elon Musk but What Are Tesla's Challenges in India?

Musk wants import duty to be cut so that he can start selling cars and create demand to justify building a plant.

The Centre has also revised GST for local EV manufacturers to 5 percent.

(Photo: The Quint)

At least five politicians invited Elon Musk to set up shop in their respective states, after the Tesla chief executive officer (CEO) mentioned on Twitter that he was "still working through a lot of challenges with the government" on Thursday, 13 January, referring to the company's hesitation to enter India's electric vehicle (EV) market.

Telangana's KT Rama Rao, Maharashtra's Jayant Patil, Punjab's Navjot Singh Sidhu, and Bengal's Md Ghulam Rabbani have all promised an easier road for Tesla, if it wants to start manufacturing in their respective states.

What 'Challenges' Is Tesla Working Through?

Tesla and the Modi government are at an impasse.

Musk wants the government to cut import duty, so that he can start selling cars and generate sufficient demand to justify building a manufacturing plant in India, while the centre wants Tesla to assemble cars in India from the get-go.

Elon's worries stem from the 100 percent tax that is currently imposed on imported cars worth more than $40,000 (Rs 30 lakh).

Tesla's cheapest offering (Model 3) costs more than that, if you include shipping costs. Even cars less than $40,000 are subject to 60 percent import duty.

NITI Aayog CEO Amitabh Kant, In December, told Economic Times that the government was evaluating Tesla's proposal to reduce import duties and a decision would be taken "shortly."

A Look at India's EV Policy

The government's priority currently is to boost local manufacturing of EVs and related components.

It has rolled out a production-linked-incentive (PLI) scheme worth Rs 26,058 crore to boost domestic EV manufacturing, generate new jobs, and encourage investment into the sector.

The Centre has also revised GST (Goods and Services Tax) for local EV manufacturers to 5 percent.

There's also another PLI scheme worth Rs 18,000 crore to manufacture advanced chemistry cells (ACC), that is, batteries to power EVs. Both local and global players can apply for these schemes.

The government's EV push is also reflected in the FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India) scheme, which subsidises certain EVs for buyers, and helps set up public infrastructure to support the transition.

However, there is currently no Central support for importing EVs into India.

A Tale of Two Wheelers

The EV landscape is very different in India compared to the United States (US), where Tesla sells most of its vehicles.

Sales of electric two-wheelers in India jumped 132% in a year (from 1,00,700 units in 2020 to nearly 2,34,000 in 2021), The Mint reported, citing a report from the Society of Manufacturers of Electric Vehicles.

Three-wheelers (e-rickshaws) were in second place with 88,000 units sold in 2021, a drop from 1,40,000 units in 2022.

However, only 4,588 four-wheeled EVs were sold in 2021, indicating that the Indian market will likely be an uphill battle for Tesla, which doesn't yet manufacture any two-wheeled vehicles.

Even in the four wheeler space, other players have a head start. Tata currently has the Indian market cornered and big players like Hyundai are also coming out with new EV offerings.

Given these challenges, it is doubtful that offers from individual states will help Tesla enter the Indian EV market.

(With inputs from Economic Times and The Mint.)