India’s states woo Tesla after Elon Musk complains about difficulty launching in the country

January 17, 2022, 12:45 PM UTC

Political leaders from five Indian states invited Elon Musk to establish business operations for Tesla in their regions, days after the chief of the world’s most valuable automobile company tweeted about the difficulties of launching his electric vehicles in the country.

“Still working through a lot of challenges with the government,” Musk said in a Twitter post on Thursday, responding to a query about Tesla’s India business plans.

The Tesla boss has asked for a cut in import duties before its India launch.

India levies an import duty of 100% on vehicles that cost above $40,000 and 60% on those below it. Tesla’s vehicle prices for its lowest priced car, the Model 3, is around $39,900, and its top models cost more than $70,000.

Unless the federal Indian government decides to reduce the tax for Tesla, the company’s lowest priced model would cost at least INR 50,00,000 ($68,493) once it was imported into India, putting it in a niche segment for luxury cars that only a few people can afford, analysts say.

State governments move in

India’s Transport Minister Nitin Gadkari told reporters last month that Tesla plans to start with sales and then might look at assembly and manufacturing in the country. Since then the federal government has not indicated whether they might look to accommodate Tesla’s demand for a lower import duty, but the representatives of the state government of Telangana, Maharashtra, West Bengal, Punjab and Tamil Nadu have swiftly offered to help Tesla.

On Friday night, Telangana industry and commerce minister K.T. Rama Rao invited Tesla to set up a base in the southern Indian state.

“Will be happy to partner Tesla in working through the challenges to set up shop in India/Telangana,” Rao tweeted. “Our state is a champion in sustainability initiatives and a top notch business destination in India.”

The western Indian state of Maharashtra was also quick to respond, with water resources minister Jayant Patil saying on Twitter that it was “one of the most progressive states” in India and would provide “all the necessary help” Tesla needed to get established there.

West Bengal minister-in-charge of minority affairs Mohammed Ghulam Rabbani replied to Musk’s tweet as well, saying that the state had the best infrastructure and state chief minister Mamata Banerji had “the vision.”

In Punjab, state congress chief Navjot Singh Sidhu promised a single window clearance to Tesla and offered to create a hub for electric vehicles in the city of Ludhiana.

Tesla’s attraction

Indian states are keen to invite Tesla because the presence of the world’s most valuable car company would burnish their image as a business destination and create employment at a time when jobs are scarce, analysts say.

“If Tesla sets up a production base in a particular state, and scales it up as a global hub to cater to both domestic and global markets, then it would help them to attract more investments,” said Suraj Ghosh, associate director at HIS Markit.

But the company will likely wait to see whether sales volumes in India pick up before it decides to establish either a facility to assemble cars or manufacture them, says Ghosh.

The total volume of luxury car sales by the top 10 producers including Mercedes, BMW, Audi and Rolls Royce fell 42% year-on year in the financial year that ended in March 2021, to 18,346 units, according to India’s Federation of Automobile Dealers Associations.

India sold 143,000 electric two-wheelers and 5,900 four-wheelers in the financial year ended March 2021, compared to 2.7 million total vehicle sales during the period, according to data from the Society of Indian Automobile Manufacturers.

Last September, India announced Production Linked Incentives for manufacture of electric vehicles, including financial incentives such as tax breaks and cheaper rentals and discounted electricity charges linked to volumes of production.

Some of India’s biggest companies, including Reliance Industries Limited, Larsen and Toubro, Mahindra and Mahindra, as well as South Korea’s Hyundai’s Motors were among those were among 10 bidders for a $2.4 billion government program for the manufacture of electric batteries.

If individual Indian states offered Tesla incentives such as a 10-year tax holiday that waived a host of local taxes, then it could be worthwhile for the U.S. vehicle maker to consider setting up a facility for assembling vehicles, says Ranajoy Mukerji, an independent automobiles analyst.

The import duty on completely knocked down car kits is 30%, which means the production cost for a Tesla car will likely come down substantially, Mukerji says, adding that the demand for electric cars is bound to pick up in India.

“There will be a huge demand for electric cars in the future in India. What seems like an exotic product today will become very popular,” added Mukerji.

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