What Prevented Elon Musk's Tesla From Entering Indian Market, So Far?

Tesla CEO Elon Musk is one of the businessmen who met Indian Prime Minister Narendra Modi on Wednesday.

After the meeting, the Twitter CEO said he is planning to visit India next year. "I am confident that Tesla will be in India and will do so as soon as humanly possible," he said.

"I would like to thank the prime minister for his support and hopefully we will be able to announce something in the not-so-distant future," Musk said. "We do not want to jump the gun on an announcement but I think it is quite likely that it will be a significant investment in our relationship with India," the Tesla CEO added.

So, What Prevented Tesla Motors From Entering the Indian Market, So Far?

Well, Tesla has been eyeing to enter the market since 2019, but the high import duty stopped the company from entering the market.

At present, cars imported as completely built units (CBUs) attract customs duty ranging from 60-100 per cent, depending on engine size and cost, insurance and freight (CIF) value less or above USD 40,000.

As per the tax brackets in India, an electric vehicle priced below $40,000 is subject to a 60 per cent import tax. Once the price surpasses $40,000, the tax rate goes up to 100 per cent, according to a report in NDTV.

The least-priced Tesla vehicle itself will cost around $45,000 (Rs 37 lakh). So, the company believes that a 100 per cent import duty would make their cars too costly as the affordability factor goes for a toss, especially in the price-sensitive Indian market.

Two years ago, the company's CEO, responding to a Twitter query, had claimed that it wants to launch Tesla in India, but "import duties are the highest in the world by far of any large country!"

The Centre's Response

The BJP government under Prime Minister Narendra Modi's leadership has been pushing for 'Make in India' where it encourages companies to manufacture products in the country. Earlier, Union Minister Nitin Gadkari had said if the US-based Tesla was ready to manufacture its electric vehicles in India then there is 'no problem' but the company must not import cars from China.

"If Elon Musk (Tesla CEO) is ready to manufacture in India then there is no problem ... Come to India, start manufacturing, India is a large market they can export from India," he said.

The Road Transport and Highways Minister requested Musk to come and manufacture in India. "But if he wants to manufacture in China and sell in India, then it cannot be a good proposition for India," Gadkari said.

In 2021, the heavy industries ministry had also asked Tesla to first start manufacturing its iconic electric vehicles in India before any tax concessions can be considered.

However, it appeared like Tesla wanted to import the vehicle first before setting up a factory in India. The automaker has received proposals from various state governments, many of which are providing subsidies and exemptions to set up a factory.

However, Tesla's demand for a reduction in import duties and the government's emphasis on the 'Make in India' initiative have created obstacles, causing delays in Tesla's entry into the Indian market.

Are Things Progressing?

When a reporter had asked Musk whether he was considering setting up his next factory in India, he had replied "Absolutely". It has to be noted that a team had come to Delhi to hold long discussions with officials.

After the meeting, Minister of Electronics and Information Technology Rajeev Chandrasekhar had said that Tesla was serious about setting a manufacturing base in India, according to a report in Reuters.

As per the official statement by the minister, "They [Tesla] are very seriously looking at India as a production and innovation base."

He further added, "We have signalled to them that the government of India is working together (and) will certainly make whatever ambitions they have or investment objective they have in India a success."

How Many Factories Does Tesla Have?

At this stage, the company has six manufacturing plants out of which four are in the US. Also, it has two Gigafactories in Shanghai and Berlin that can manufacture cars and batteries -

Tesla is prepping up to start a Gigafactory in Mexico.

With the market for electric vehicles raping growing in India due to the Narendra Modi government's push for clean energy, it is time for Tesla to act.