Tax woes: Tesla gets an offer, but with a caveat on local manufacturing

Tesla models, with price starting at around Rs 34 lakh in the US, will cost double in India

Just days after Elon Musk tweeted that his company was “working through a lot of challenges” with the Indian government, officials suggested that the Centre wants a firm commitment from Tesla on local manufacturing of electrical vehicles in line with its Make in India vision. Along with that, it wants an investment plan of the company ahead of any discussion on tax sops. According to reports, the Centre has expressed reservation over the company’s view that it could begin with local sourcing of components before shifting to manufacturing in India.

Having made its point that India's tariffs are among the highest in the world pushing the landing cost of an EV to over $40,000, Tesla is pinning its hopes on the Union Budget for changes in the tax structure, a Reuters report said. But, there’s action beyond the Centre’s caveat on local manufacturing. Top representatives of states have not only sent out feelers through Twitter messages that Tesla is more than welcome, the company is being seriously wooed across many locations in India, sources told Business Standard.      

Maharashtra, Telangana, Karnataka, Tamil Nadu, West Bengal, and Punjab are competing to get the world's richest man to set up Tesla's EV manufacturing unit in their state.

A senior Telangana government official said, "We are in touch with the Tesla team. Where required, we will influence the central government. Where not possible, the state will try to compensate for whatever they are not able to get in terms of subsidies and incentives so that they can have a smooth landing.” Telangana Industries Minister K T Rama Rao was the first to come out with an invitation to Musk by calling the state a champion of sustainability.

Other states have been trying to snag Tesla through 'open freebie offers' and aggressive marketing. Karnataka has been billing itself as the ‘EV Hub of India’. Not to be left behind, Tamil Nadu has boasted that it is the 'EV capital' of the country.

Tesla has been seeking a reduction in import duties in India to launch its car and other products. News that it was facing hurdles in getting its investment cleared came to light after Musk tweeted on January 13 that his company was facing challenges in India.

Even if the Budget disappoints Musk, Telangana has indicated that it is ready to compensate the company in the event of any shortfall in the Centre’s sops.

Two Maharashtra ministers, Aditya Thackeray, son of the chief minister and Water Resources Minister Jayant Patil, have said in public that they will be offering all necessary assistance to Musk.

Thackeray even wrote to Finance Minister Nirmala Sitaraman asking her to lower import duties for all EVs. "Pioneering companies like Tesla, Rivian, Audi, and BMW among many others must be given a time-bound concessionary customs rate for the import of vehicles for retail sale. This will drive the aspiration value in the market, boost investment in our supply chain, and encourage the start-up ecosystem to follow the lead of such companies," said Thackeray in his letter.

In Karnataka, Minister for Large and Medium-scale Industries Murugesh R Nirani issued an open invitation to Musk while highlighting the state’s 400 research and development centres, 45 EV start-ups and its EV cluster near Bengaluru.

Tamil Nadu Industry Minister Thangam Thennarasu tried to win Musk’s attention by pointing out that the state is home to around a 34 per cent share of the country's total planned EV investments, adding for good measure that Tamil Nadu is one of the top nine renewable energy markets in the world.

States have been busy thinking up catchy taglines that could give them an edge in the race to win Tesla. West Bengal has come up with ‘Bengal means Business’. Punjab has talked up the ‘Punjab Model’ under which Ludhiana will become a hub for EVs and the associated battery industry and under which time-bound clearances will be offered.