India sees Tesla alone achieving 50% domestic value addition for EVs in less than 3 years: Official

The long-awaited announcement of Tesla's entry into India is expected to happen on April 22 after a meeting between Prime Minister Narendra Modi and billionaire Elon Musk.

The Indian government expects meeting 50 percent domestic value-addition (DVA) within less than three years through Tesla Inc’s vehicles alone, a senior official said on April 19.

The policy for electric vehicles (EVs) mandates 50 percent domestic value-addition within 5 years at the maximum, to qualify for the lower import duty rate of 15 percent.

Unlike mobile phones, the component ecosystem in India for EVs is better, and, hence, the government is confident of achieving the target for value- addition comfortably, before the stipulated time, the official told Moneycontrol.

Tesla entry into India

The long-awaited announcement of Tesla's entry into India is expected to on April 22 after a meeting between Prime Minister Narendra Modi and billionaire Elon Musk.

On fears around Tesla ending up assembling in India rather than making in India, the official said: “The EV policy has laid out stringent sourcing norms and India has a strong auto component industry, with Tesla already sourcing components worth $1.5 billion-2 billion from India per year.”

In September 2023, India's trade minister Piyush Goyal had said that while the company has already sourced parts worth $1 billion, Tesla plans to increase it to $1.7-$1.9 billion .

The official further said that the value-addition in Apple Inc’s iPhones is between 15-20 percent, but compared to mobiles and electronics, India’s auto components sector is stronger.

This is why Tesla’s EVs in India would easily be able to adhere to the local sourcing norms laid out in the policy.

Though India’s EV policy grants a significant concession on import duty, it comes with riders, keeping in mind the country’s manufacturing ambitions.

Policy requirements

Apart from the DVA requirement, the policy mandates a minimum investment of Rs 4,150 crore as well as a timeline of three years for setting up manufacturing facilities in India to start commercial production of e- vehicles.

Companies that meet these requirements will be allowed to import 8,000 EVs a year at the lower import duty on cars costing $35,000 and above. India levies a tax of 70 percent or 100 percent on imported cars, depending on their value.

The duty waiver on EVs, which can be imported, is capped at the annual production-linked incentive (PLI) of Rs 6,484 crore or the investment made by the entity, whichever will be lower.

In fact, the investment commitment made by the company will have to be backed up by a bank guarantee in lieu of the custom duty forgone and the guarantee will be invoked in case of non-achievement of DVA and minimum investment criteria.