India opens doors for global EV makers; scheme to help USA's Tesla

Scheme allows EV imports by manufacturers who commit to invest Rs 4,500 cr at 15% custom duty for 3 years

The Ministry of Heavy Industries (MHI) on Friday announced a new policy to boost electric vehicle (EV) manufacturing in the country by global players, such as Tesla, VinFast, BYD, Kia, Škoda, BMW, and Mercedes-Benz. 

The new policy entails lower import taxes on certain electric vehicles for companies committing to at least $500 million (Rs 4,150 crore) in investment and a manufacturing plant within three years.
 

It proposes to reduce import duties for interested EV makers to 15 per cent from the current 70 per cent or 100 per cent on vehicles having a CIF (cost, insurance, and freight) value of $35,000 and above for a period of five years from the date of issuance of the approval letter by the government. 
 

This proposed duty structure aligns with the demands made by Elon Musk-promoted Tesla in its discussions with the Indian government.
 

According to officials, the policy allows all international players, including Chinese manufacturers, to qualify for a duty reduction, provided they establish manufacturing facilities within three years and achieve a localisation level of 50 per cent by their fifth year of operations in the country.


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A senior government official working on the scheme emphasised that the initiative would attract not only global original equipment manufacturers (OEMs) but also existing ones looking to import their EV models not currently available in India. 

“All entities, regardless of their origin, can partake and seek incentives under the scheme, as long as they commit to a minimum investment and adhere to the prescribed policy guidelines,” the official said.
 

However, companies in the countries that share land borders with India must obtain additional government permission, as outlined in the 2022 amendments to the FDI policy. China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan share land borders with India.
 

Currently, fully assembled completely built-up (CBU) vehicles priced at more than $40,000 attract a 100 per cent tax. Those priced below $40,000 are subject to a 70 per cent tax. Completely knocked-down (CKD) units that require reassembly in the destination country already attract a 15 per cent duty.

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Although the policy is intended to include all OEMs, it has been introduced against the backdrop of Tesla’s strong push for a duty reduction. On December 18, 2023, Business Standard reported that Tesla had requested a reduction in duty on CBUs to 15 per cent and proposed including charging infrastructure within the definition of investment during its meetings with government officials.
 

According to the policy document, one OEM can get a maximum waiver of Rs 6,484 crore in Customs duty.

A notification by the MHI stated that to qualify for the scheme, an applicant company or its affiliated enterprise must have a minimum revenue threshold of Rs 10,000 crore from automotive manufacturing, along with a global investment commitment of Rs 3,000 crore in fixed assets.

“Under this scheme, EV passenger cars (e-4W) can initially be imported with a minimum CIF value of $35,000 (Rs 29 lakh), at a duty rate of 15 per cent for a period of five years from the date of issuance of approval letter by the MHI,” said the policy draft notification.

This means that if a company imports a car costing $35,000 and commits to the minimum investment of $500m, it can import 25,974 cars over five years. However, if the investment amount is increased to $781 million or higher, the company can import 40,582 cars, according to an official. The maximum number of EVs allowed to be imported is capped at 8,000 units per year.

The investment commitment will have to be backed up by a bank guarantee in lieu of the custom duty forgone, the ministry said in a statement.

The bank guarantee will only be refunded upon achieving a 50 per cent domestic value addition and making an investment of at least Rs 4,150 crore, or up to the amount of duty foregone over the course of five years, whichever is greater.

Applications will be solicited within 120 days or more from the notification of this scheme. The period for accepting applications through the Notice Inviting Applications will extend for 120 days or more. The MHI retains the authority to open the application window, as needed, within the initial two years of the scheme.