Take-home pay for Tesla and others: 15% if you jointly invest $500 million in local manufacturing

NEW DELHI: The government unveiled a new policy on Friday for high-end electric cars manufactured abroad. Under the new policy, import duties for cars like VinFast and Tesla would be lowered to 15% for a maximum of five years, as long as the businesses agreed to spend at least $500 million (Rs 4,150 crore) in local production.

The government’s reluctance to reduce customs duties on autos, a sector that has historically been protected by high tariffs, has been overcome by the heavy industries ministry and the department for development of industry and internal commerce, who worked together to create this strategy.

At the moment, import duties on automobiles up to $35,000 are 35%, and on cars beyond that amount, they are 100%.

The Model 3, which is Tesla’s most affordable car, is priced at $38,990 in the US. Post-import duty, if the corporation chooses to proceed with the project, the cost will be around $45,000 (more than Rs 37 lakh). It will be subject to road tax and other charges in addition to 5% GST.
Although discussions have been ongoing for some months, the policy was first revealed the day before the general election model code of conduct was established.
The Elon Musk business had mentioned using India as a centre to create less expensive cars for both the home market and exports during talks with the government last year. In addition to seeing PM Modi, Musk also spoke with Piyush Goyal, the minister of trade and industry.
Businesses like VinFast have revealed their intention to spend $2 billion in Tamil Nadu, India, to establish a facility. The Vietnamese firm could have the opportunity to apply during the 120-day period when the application window would be open.
Although it is considering less expensive choices, Foxconn is also developing an electric vehicle. A few other companies, including BMW, are also eager to expand their line of electric vehicles into India.
The restrictions on Chinese investment are making it difficult for Tesla’s competitor, BYD, which is already present in India, to increase its capacity. Another Chinese business, MG Motor, is attempting to break through the FDI wall with Sajjan Jindal’s help since the Modi government has been hesitant to let foreign businesses invest in India.
Companies that fulfil the minimum investment requirements for equipment and machinery as well as charging infrastructure under the special regime for electric four-wheelers would be required to provide bank guarantees and begin production in the nation within three years of receiving clearance. Additionally, they will need to guarantee that the nation accounts for 25% of the value contribution. According to the Ministry of Heavy Industries (MHI), this must be reduced to 50% in five years.
The details of the initiative have been announced by the revenue department, which approved it after approval from Finance Minister Nirmala Sitharaman.
One of the scheme’s conditions is that a corporation may only import up to 8,000 automobiles each year. The government has calculated that around 26,000 cars with a landing price of $35,000 (Rs 29 lakh) may be imported over the course of five years, given the tariff benefit. Likewise, 11,764 $50,000 e-cars may be exported to India. Additionally, the firms have the option to import a combination of cars that cost more and ones that are under $35,000.
If a corporation doesn’t fulfil the investment and domestic value addition standards, the government plans to use bank guarantees.
We cordially welcome foreign businesses to visit India. Commerce Minister Piyush Goyal told reporters, “I’m confident India will become a global hub for EV manufacturing, and this will improve trade and create jobs.”
Government officials said that although some domestic automakers, including Tata Motors and Mahindra, have prepared a portfolio to support their electric vehicle offerings, the decision was made after a thorough examination that demonstrated how their products would not be impacted.

India is the third-largest automobile market in the world; in the last ten years, the average vehicle price has risen from Rs 6 lakh to Rs 10 lakh. An interview by MHI revealed that out of the 40 lakh automobiles sold in 2023, 52,000 units, or 1.3% of the market, were in the above Rs 40 lakh class.
DPIIT secretary Rajesh Kumar Singh said, “The goal is to launch the four-wheeler e-car manufacturing in India with very strict kind of value addition norms while also ensuring that we allow imports in a very limited quantity.”