Tesla faces long road to success in India even as New Delhi weighs tax cuts for EVs

India is on the verge of enticing Tesla to start operations with significant reductions in import duties, which could energize the country's electric vehicle (EV) industry. However, Tesla is expected to encounter numerous obstacles on its path to success in this promising yet complex market. India imposes a hefty 100% import duty on cars valued over $40,000, and most of Tesla's lineup exceeds this price point. For the past two years, Tesla has been advocating for lower import tariffs. The Indian government is contemplating a policy change that would allow foreign automakers to import EVs at reduced duty rates of 15% if they commit to manufacturing these vehicles in India eventually.

Tesla's CEO Elon Musk expressed his eagerness to invest in India following a meeting with Indian Prime Minister Narendra Modi. Puneet Gupta from S&P Global suggests that any potential tax reductions would be implemented gradually, aiming to attract major players to establish a manufacturing presence in India. Despite being the third-largest car market, electric cars made up only 1. 3% of total car sales in India last year. The slow adoption rate is attributed to high costs, limited model availability, and insufficient charging infrastructure. The Indian EV market is predominantly composed of two- and three-wheelers, with electric car sales expected to double this year.

India has been striving to grow its nascent EV sector by offering production-linked incentives, including tax benefits and reduced operational costs. However, electric cars have seen limited uptake compared to smaller EVs that are more suited to navigating congested urban environments. Lowering import duties is crucial for Tesla's potential success but may face opposition from local manufacturers. India is likely to impose a high threshold for importing complete vehicles to prevent a surge of imports. Tesla's entry could pave the way for other premium electric brands, enhancing infrastructure and benefiting the country's auto component industry. Even if Tesla struggles to sell a large volume of cars in India, establishing operations could serve as a gateway to other regional markets.