In a letter to Indian government officials, Tesla advocated for lower tariffs for imported electric vehicles, saying that it could lower the cost of its EVs enough to increase demand and tax revenue for the government. The move is likely to face pushback from officials like Prime Minister Narendra Modi, who says that the high tariffs are designed to boost manufacturing within the country.
The current tariff rates are 60% of the purchase price for an imported vehicle under $40,000 and 100% for vehicles above $40,000. Tesla advocated dropping that rate to 40% of the price across the board.
Tesla does have plans to build a factory in India, according to state officials in Karnataka. Elon Musk had previously mentioned that he would like to expand the company’s presence in India due to high tariffs, which can be as much as the base cost of one of its vehicles. Earlier this year, Musk had expressed his willingness to enter the Indian market by the end of 2021:
As part of his efforts to gain support from the Indian government, he gave Modi a tour of one of Tesla’s Gigafactories in 2015. During meetings with government officials, including Modi, Musk did express concerns about the state of India’s electric infrastructure and tariffs that could price many Indians out of the EV market. The government has been working on improving its electrical grid and connecting more homes.
This is likely to be a massive project, considering that 300 million of India’s residents didn’t have the level of access to electric power that U.S. citizens take for granted in 2015. This includes major investments in sustainable energy sources like nuclear, wind, and solar power so that India can expand its residents’ access to electricity without a major increase in carbon emissions.
Due to the challenges in upgrading the electrical grid so that most Indian residents have access, let alone having it support a considerable number of electric vehicles, only a total of 5,000 EVs were sold in India last year. Most of the EVs sold in India were priced under $28,000. Prices for a Tesla vehicle currently start at $39,990 for a baseline Model 3 Standard Range Plus. Competing models include Mercedes Benz’s EQC luxury EV, which starts at $136,000, and Audi’s electric SUVs, which start at $133,000.
The high tariffs and low sales do not seem to have slowed Tesla down much in its plans to enter the Indian market. It is already hiring in India and has plans to open up showrooms in the country.
Indian officials did promise that India would try to keep the costs of manufacturing lower than China can offer if Tesla goes through with its plans to build a factory in India. Tesla is already building vehicles at Gigafactory Shanghai, though many of them are exported to Europe, a scenario that is likely to continue until it can permanently fend off German environmentalists (some of which are suspected of an instance of arson that damaged power lines leading to Gigafactory Berlin), get regulatory agencies to quit delaying their final approval with bureaucratic red tape, and get Gigafactory Berlin opened up.
Lower tariffs for vehicles imported to India would have the benefit of giving Tesla a better chance to test the market before it actually breaks ground on a factory, though its proposed lower rate of 40% does still seem high. Prime Minister Modi is understandably noncommittal, though, considering that increased auto manufacturing in India would mean a respectable boost to the nation’s economy.