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India Attempts To Woo Tesla Away From China With Incentives For Local Production

Tesla has been in the process of coming to India for a long time now. There were first reports of the move back in 2016, and ever since, there have been rumours regarding the same. Last year, a lot of positive steps were taken between the Californian automaker and the government, as Tesla moved closer to an Indian entry. In January this year, Tesla registered as a company in Bengaluru, Karnataka. As the country awaits the beginning of Tesla deliveries, the government is also trying to woo the company with incentives.

Nitin Gadkari, the Minister for Road Transport & Highways and the Minister of Micro, Small and Medium Enterprises, offered subsidies to Tesla in exchange for a production commitment. He said that the government is ready to offer a subsidy which will help lower production costs. Tesla’s cost of production in India will be lower than in China if the deal works out.

Details of the Deal

Of course, none of this has made it to official papers yet. Sources say that Tesla is planning on starting deliveries in India by mid-2021. They also mentioned that, in the beginning, Tesla will import and sell Model 3 in the country. A mid-sized electric sedan, the Model 3 is Tesla’s most affordable vehicle. This means, however, that the company will import the vehicles as a completely built unit (CBU). For CBUs being imported in India, the import duty is between 60 to 100%. A 40-50% GST and registration taxes between 10 and 20% will follow. This will mean that Tesla’s most affordable car won’t be as affordable in India. Mr Gadkari has a solution for this issue.

Rather than assembling (the cars) in India, they should make the entire product in the country by hiring local vendors. Then we can give higher concessions.

The minister did not reveal any more details about the incentives on offer. Currently, Tesla is planning on setting up a manufacturing plant in Karnataka, which is fast becoming India’s ‘electric vehicle hub’. While details on this manufacturing plant aren’t known yet, many people are claiming that it will be majorly an assembly plant. Most of the important components will be manufactured outside the country, with the manufacturing of smaller parts and assembly happening at the plant, say the sources.

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Nitin Gadkari is looking to change the dynamics of this production plan. He said that the government will ensure that the production cost for Tesla is the lowest compared with other plants in the world, even China. Of course, wooing Tesla this way isn’t an easy process, as they probably won’t respond immediately.

Why this Deal is Important for India

It is quite clear that India wants to boost the local manufacturing of electric vehicles. If manufacturers start producing batteries, motors and other major EV-related components locally, it’ll drastically reduce the final market prices of these vehicles. Local production will also remove the added charges of import duty. With many countries working towards curbing carbon emissions, companies are looking to make the shift towards electric mobility. Subsidies such as this will make life easier for the companies.

It is essential for India to switch to cleaner sources of energy and reduce vehicle pollution to meet its Paris Accord climate commitments. As a result, the government is drawing up a production-linked incentive scheme for component manufacturers. This may also include advanced battery manufacturing units, but the details are unknown yet.

The Shift towards Electric Mobility

Promoting electric mobility is at the heart of reducing carbon emissions for every country. Many European countries are planning to ban the sale of combustion vehicles in the coming years, the most notable being Norway. While Norway is aiming for a combustion-vehicle-sales-ban by 2025, the UK and France are aiming for 2030 and 2040. While these are still quite some time away, companies have started taking them into account, with traditional companies slowly going all-electric.

India is also aiming for a similar shift towards electric mobility. Last year, out of a total of 2.4 million car sales, electric vehicles accounted for just 5,000. This is because of near-negligible charging infrastructure and the high costs of electric vehicles. India does not have a comprehensive electric vehicle policy like China does either.

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China, in contrast, sold 1.25 million electric vehicles out of 20 million sales last year. Tesla already has a plant set up in Shanghai, and the country accounted for more than a third of Tesla’s global sales.

India’s Plans for Tesla and the EV Community

India is one of the biggest automotive markets in the world. This makes a production plant in the country quite attractive for Tesla, as it’ll drive down manufacturing costs as Mr Gadkari has promised. Apart from this, with 80% of the components required in lithium-ion batteries being manufactured locally, India could soon become an export hub, says the minister.

“i think it’s a win-win situation for tesla”

India had introduced tougher emission rules for manufacturers to bring them up to international standards. There is also speculation regarding some tightening of fuel efficiency rules from April 2022, but it could be delayed because of the COVID-19 pandemic. Of course, India may delay these rules, but the regulations may compel many manufacturers to add electric and hybrid vehicles to their rosters.

Our Opinion

This is a very good move by the Indian government to promote local manufacturing of electric vehicles. It is no secret that India is a huge market for automobiles, but the acceptance of electric vehicles has been slow. Tesla is one of the leaders of this market, and a production plant will only drive down costs. They could then move their focus towards setting up charging infrastructure as well.

Of course, Tesla is famous for taking its time with such decisions. If the mid-2021 delivery timeline is true, then Tesla vehicles may be highly expensive for the first few months at least. But let’s hope that the government is able to negotiate with the company. It’s been a long wait for Indians to drive a Tesla in the country.

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Mihir Tasgaonkar
A mechanical engineer who loves reading and writing about new technologies in the automobile industry.

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