Tesla India entry imminent as government approves new EV policy

Participating companies must establish manufacturing facilities in India within three years and commence commercial production of EVs.

2 min read•15 Mar '24

Autocar India News Desk

26K+ views

The government of India has approved a policy to attract investments in the EV space, which states that a company can invest a minimum of Rs 4,150 crore, with no upper limit.

However, there is a catch. Participating companies must establish manufacturing facilities in India within three years and commence commercial production of EVs. As an incentive, companies investing in EV manufacturing facilities will be permitted limited imports of cars at a reduced customs duty rate.

This implies that cars with a cost, insurance and freight (CIF) value of USD 35,000 (over Rs 29 lakh), will be levied 15 percent as customs duty (as applicable on CKDs) for five years, if the manufacturer sets up a manufacturing facility in India within a 3-year period. Additionally, they are required to achieve 25 percent and 50 percent localisation by the third year and fifth year, respectively.

This is an interesting development as US EV maker Tesla has been lobbying with the government to reduce import duty for years. Although the government had been toying with the idea, it had been facing resistance from Indian and foreign manufacturers operating in India as they have been working on localising their products for years.

"This will provide Indian consumers with access to the latest technology, boost the Make in India initiative, and strengthen the EV ecosystem by promoting healthy competition among EV players, leading to a high volume of production, economies of scale, lower cost of production, reduce imports of crude oil, lower trade deficit, reduce air pollution, particularly in cities, and will have a positive impact on health and environment," the government said in a statement.

The duty foregone on the total number of EVs allowed for import would be limited to the investment made or Rs 6,484 crore (equal to the incentive under PLI scheme), whichever is lower. A maximum of 40,000 EVs, or 8,000 per year, would be permissible if the investment is of USD 800 million (over Rs 66,000 crore) or more. The carryover of unutilised annual import limits would be permitted.

The investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone. The Bank guarantee will be invoked in case of non-achievement of minimum investment criteria defined under the scheme guidelines.

Additionally, the companies whose credentials have been considered for the selection of applicants under this scheme shall not be allowed to dilute their shareholding (direct or indirect) in the applicant during the tenure of the scheme.

With inputs from Shahkar Abidi and Kiran Murali