I am struggling for a dance metaphor to describe Tesla’s entry into India – I thought initially a waltz, one step forward, two steps backwards and a step sideways. Then, I thought, perhaps a slow dance because of the time that it has taken. One thing I know for sure, it isn’t a polka.
India is known for its tech-savvy middle class, so Tesla and India would seem to be a perfect match. But apparently the obstacles are huge and are taking some time to get around.
As the second largest country by population in the world (after China) with 1.4 billion people and the world’s fifth largest car market, you would expect that Tesla would want to import and sell cars, or even build a gigafactory. But the situation is not as simple as you would expect.
Before building a gigafactory, Tesla would like to test the level of demand by importing cars for sale. However, India’s import tariffs are prohibitive. Cars imported into India are currently taxed at 60% for vehicles costing below $40,000, or at 100% for vehicles with prices above $40,000.
Tesla, meanwhile, has been lobbying for a reduction of the customs duty to 40% for EVs. These tariffs protect India’s own car manufacturing industries. Tesla is negotiating to have these tariffs reduced and several important politicians are endeavoring to help.
India believes it can make Teslas cheaper than China can and Tesla has a huge fan base. To be able to sell cars competitively, Tesla has to build them in the country; before they commit a huge amount of funds to a project this expensive Tesla wants to test demand.
It’s not just chicken and egg, it’s more like high stakes fiscal dueling and this discussion dates back to 2015. Long range fiscal dueling.
Each new announcement of progress is greeted with enthusiasm but then it seems to fade. Ministers are considering tariff reductions, tariff reductions denied. A state is offering to host a factory – mentioned in a tweet – the tweet is deleted.
What is definitely happening? India is keen for Tesla to come. Tesla is keen to get involved. There just seems to be a maze of obstacles. The Model 3 can’t handle the roads, and has to be raised.
But the air is starting to clear; Tesla has formed an Indian subsidiary. Tesla has hired executives. Tesla is looking for local parts suppliers. Tesla cars are being tested in the country (the low clearance of the Model 3 has been a problem).
Tesla CEO Elon Musk said on Twitter last month that a local factory in India was “quite likely” if the company was successful with vehicle imports but taxes on them are high.
Even so, the government is in favour of a cut if it can see companies such as Tesla providing some benefit to the domestic economy – manufacture locally, for example, or give a firm timeline on when it would be able to, one of the officials said.
It will be interesting to see who blinks first.
David Waterworth is a researcher and writer, a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He owns 50 shares of Tesla.