Tesla wants lower taxes but India wants Tesla to buy $500 million of local auto parts

The biggest electric vehicle manufacturer in the world Tesla Inc. has been eyeing the Indian auto market for quite a while now but due to the hefty import taxes, the American EV maker has been avoiding taking the chance. The company chief Elon Musk has asked the government of India to reduce the taxes but contrary to his demand, the government has now asked the brand to commit to sourcing at least $500 million of auto components from the Indian domestic market.

A recent report by a person close to the decision-makers has revealed that the EV producer has been given the condition that it can start procuring local auto parts at a lower base but it will have to agree to ramp up the Indian parts purchases by around 10 per cent to 15 per cent a year until a satisfactory level is achieved. Additionally, the government of India has formally told the American auto giant to ramp up the domestic sourcing. As of now, there has been no response from Tesla but earlier in August of 2021, the company did make a claim that it has successfully sourced around $100 million worth of auto parts from India for its electric vehicles.

Tesla has kept no secret in expressing its interest in entering the Indian subcontinent for the sale of its electric vehicles but because it is an unknown realm for the automaker it wants to test the waters by selling completely built units (CBU) models here first. The company also has fears that due to the high import taxes of CBU’s it won’t be able to find sufficient demand. Tesla hence has asked the government of the nation to reduce the 100 percent import tax, but the government does not seem to entertain this demand from the EV brand.

According to a source, the government wants Tesla to approach them with a component-sourcing plan that’s proportional to its car sales forecast in India and only then the government might move forward with the tax deduction that the company is demanding. The source also revealed that Tesla should also export made-in-India components to China if it plans to import CBU’s models from the neighbouring country.

Recently, the government of India rolled out the production-linked incentive (PLI) scheme to encourage EV production in the country by different manufacturers and Tesla was eligible for it, but despite that, it still refrained from applying to the scheme. A senior government source said, “They (Tesla) have not applied. Tesla can avail of benefits under the PLI schemes for the auto sector, for making advanced chemistry cells, but the company wants concessional duties without showing any commitment to produce here,” The official added, “The government wants to enable Tesla to manufacture vehicles in India. But they have to first submit firm business plans,”

Earlier in July last year, Tesla chief Elon Musk shared a tweet in which he mentioned that India has some of the highest import taxes in the world and said that the country treats clean energy-vehicle the same as petrol-powered vehicles which is not very consistent with the country’s goal of attaining carbon-neutrality.

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