India is considered a sleeping giant in the global EV market. Not just because it is the fifth-largest auto market in the world, but due to its sheer potential. You have an aspirational middle class, you have a country that’s trying to reduce its carbon footprint, you have cheap labour and access to raw materials and you have governments (state and central) that seem to finally realise the massive upside of adopting EV across the board.

So, it is not surprising that people often lament Tesla’s conspicuous absence from the Indian market. It’s the most recognizable brand in the ecosystem and yet, even after a decade, they are yet to make a splash in India.

But the absence though is not for lack of trying.

Tesla on its part has been teasing an entry since 2019. It has already registered a company in Bengaluru. It’s hiring people in India. And as many as seven Tesla models have been deemed roadworthy by Indian authorities. Yet the cars haven’t seen the light of day quite yet and if you’re wondering what’s the holdup, well, Tesla founder Elon Musk dropped a hint recently.

Responding to a tweet on the subject, Musk replied — “Still working through a lot of challenges with the government.”

And this seemingly honest reply (or maybe it was well thought of), kicked up a major political storm. Several folks began pinning the blame squarely on the Indian government and what followed was almost a comical mad rush to get Musk’s attention. Notably, ministers and politicians from at least four major Indian states sent out invites and made their pitches via quote tweets, beseeching the billionaire to come set up a Tesla plant in their respective state. They promised land, infrastructure, a streamlined approval process, and a lot more just to get him to consider their proposal.

And you could see why this may be tempting to the layperson.

Setting up a car factory in India is a gargantuan affair. You have to wade through tedious red tape, acquire land, abide by stringent labour codes and if the universe doesn’t spring any surprises (think Tata Nano episode) you may finally have your factory.

And in most cases, it’s almost impossible to do all of this without active government intervention.

However, Musk and the central government have been in talks for years and it’s unlikely that the problem stems from this bit alone. If anything, he may be hinting at something else entirely. Something like Import duties.

He even said so himself, last July, while tweeting at a random Twitter user.

The tweet went — “We want to do so (launch in India), but import duties are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India.”

So, what’s with our Import duties?

For starters, they really are some of the highest in the world. India currently levies a 60% tax when you import a car priced below $40,000 and 100% for those priced above $40,000. In contrast, most western countries like US and Canada apply single-digit rates, with emerging markets like China and Brazil levying rates of 22% and 35% respectively. With the import duties as is, even the most basic Tesla model would cost upwards of ₹60 lakhs. Making it unaffordable for most Indians.

Now the government’s position is that this move helps local car manufacturers. They believe that this will incentivize auto companies to “Make in India.”

So why doesn’t Tesla take a leap of faith and make in India?

Well, first off, Tesla doesn’t want to set up up a local production plant in India just yet. They would rather test the waters and see if India warms up to the idea of futuristic cars. Moreover, EV sales account for barely 1% of total vehicle sales in India right now and there is no indication that Tesla cars might work a miracle and fly off showrooms once they get here. And even if they did, it’s not to say that the manufacturing facility will be a runaway success.

India is a graveyard for US car manufacturers. Ford and General Motors have already exited India after investing heavily over the past couple of decades. They set up sprawling manufacturing facilities only to find out that value-conscious customers preferred other more affordable alternatives. So you can see why Tesla would much rather delay “Making in India” and sell imported vehicles directly to Indians.

The import duty is key here.

Except the government isn’t budging. As we already noted, India has high import duties to boost local manufacturing. Any attempts to lower duties would not sit well with local manufacturers and offering Tesla special treatment may not sit well with other up and coming EV players, foreign or domestic.

So yeah, it seems like we have an impasse right now and that means Tesla cars may not be hitting Indian roads anytime soon.

Will talk about many other things in our IPI EXPLAINER series.

Comment your suggestions or topics.

Take Care.

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