Tesla’s India entry: Govt. may prioritise role in global EV supply chain

Tesla will start by importing vehicles and gradually increasing local procurement.

The Centre is likely to prioritise integrating India into Tesla’s global value chain (GVC) rather than insisting on immediate local manufacturing commitments, to position itself in the electric vehicle (EV) supply chain, a senior government official said.

Tesla is expected to enter the Indian market through direct imports and set up flagship outlets in Delhi and Mumbai while gradually increasing local sourcing, the official told Moneycontrol. The government, meanwhile, may extend further import duty relief, signalling a broader relaxation of import norms for EV makers.

“Tesla is not ready to set up a manufacturing facility in India as of now, but they will import directly. So the idea is that India can become part of its GVC (global value chain). They (Tesla) will start making spares and sourcing some components locally. If even 10 percent of Tesla’s production starts being manufactured in India, that is a step forward. The government’s idea is that excluding such EVs from the Indian market does not serve a purpose if they are not going to be manufactured domestically in the next five to seven years,” the official said.

The development comes amidst evolving trade dynamics and policy considerations, with the government exploring ways to encourage local component manufacturing by the Austin-headquartered electric vehicle major.

Import duty relief 

To facilitate Tesla’s India entry, the government is also considering lowering import duties for EVs, along with a broader relaxation of EV import norms. Additional duty relief could be on the table to attract leading global EV players. The readiness to reduce import duty on EVs indicates a potential shift in policy to attract foreign players and increase India’s presence in the global supply chain.

The Basic Customs Duty (BCD) on fully built EVs priced above $40,000 has been reduced to 70 percent. However, an additional 40 percent Agriculture Infrastructure and Development Cess (AIDC) has been introduced. The 10 percent Social Welfare Surcharge (SWS) has been exempted, resulting in an effective import duty of 110 percent for EVs above this price point. For EVs that cost less than $40,000, the import duty remains at 70 percent.

No manufacturing sops

Tesla’s India operations will not fall under the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), designed to support car makers with lower duties if they commit to domestic manufacturing.

Tesla will not fall under the SPMEPCI scheme because there is no manufacturing commitment as of now. They will start with imports, and gradually explore local sourcing, the official said.

Elon Musk and the government had been extensively negotiating Tesla’s India foray over the past few years, with the Centre previously insisting on local manufacturing as a prerequisite for lower import duties.

Tesla’s proposed outlets in Mumbai and Delhi will mark the beginning of the EV major’s official presence in India, setting the stage for a gradual ramp up in engagement with buyers and the automotive ecosystem.