While the Centre wants Tesla to set up base in India and sell locally and export, Musk insists on slashing import duties first. The government may consider lowering import duty along with offering other sops but Tesla has to play ball and set up a manufacturing factory here first. Now, four politicians from four non-BJP ruled states have invited Tesla to set up shop in their provinces, just days after Musk said he was still facing a lot of challenges with the Centre.
Now, what is Musk’s issue with the government?
Tesla’s plan to enter the Indian market has been put on hold since 2019 due to the high import taxes on electric vehicles. India levies a 60% import tax on electric vehicles priced $40,000 or less, and 100% on those priced above $40,000. In comparison, Tesla cars start at $44,690 (approx. Rs34 lakh) in the US, and selling cars in India with 100 per cent import taxes would mean shelling out around Rs 60 lakh for a car!
Now, Musk has time and again tweeted, seeking a cut in import duty. In July 2021, Tesla CEO Elon Musk tweeted that he is hoping for ‘temporary tariff relief for electric vehicles, and that he wants to launch its cars soon in India, but Indian ‘import duties are the highest in the world by far of any large country!
A month later, Tesla executives met with government officials in a closed-door meeting to even discuss the high import taxes and requested for them to be reduced. The executives argued that it wasn’t viable for Tesla to do business in India under the current import duty structure as it would make its cars unaffordable in India.
In a letter to the road ministry, the US firm even said that the effective import tariff of 110 per cent on vehicles with customs value above $40,000 is “prohibitive” to zero-emission vehicles. It requested the government to standardize the tariff on electric cars to 40 per cent irrespective of the customs value, and withdraw the social welfare surcharge of 10 per cent on electric cars.
Tesla also argued that these proposals would not have any negative impact on the Indian automotive market as no Indian OEM currently produces a car (EV or ICE) with ex-factory price above $40,000 and only 1-2 percent of cars sold in India (EV or ICE) have ex-factory/customs value above $40,000.
However, the Modi government has so far refused to obliged with any kind of rebate. It has, instead, suggested that the US firm could manufacture electric cars in India before any tax consessions are considered. Union Minister Nitin Gadkari even said that Tesla has a golden opportunity to set up its manufacturing facility in India given the country’s thrust on e-vehicles, and the fact that it is already sourcing various auto components from Indian automakers.
Now, last week, Musk again tweeted “Still working through a lot of challenges with the government”, which immediately drew criticism from the Centre, as Tesla can can set up shop in India to manufacture EVs under the Production-Linked Incentive (PLI) window. Mask has in the past said a factory in India is “quite likely” if Tesla can first test the waters by importing vehicles.
“This has been ongoing for the last few years. Tesla wants to sell completely finished products in India while the Indian government wants to bring complete knocked down (CKD) products initially and start assembling in India,” said Soumen Mandal, research analyst, IoT, Automotive and Devices Ecosystem at Counterpoint Research.
Even Niti Aayog Vice Chairman Rajiv Kumar has urged US-based Tesla to manufacture in India, while assuring the company that it will get the tax benefits it wants from the government.
“Come and manufacture in India, you (Tesla) will get all the tax benefits you want,” he had said last year while replying to a question about the company’s demand related to tax concessions. “The argument that we will create a market by exporting into India finished products… is an old argument and we have moved on from that,” Kumar added.
Road Transport Minister Nitin Gadkari also reiterated that he has asked Tesla several times to manufacture its electric vehicles in India, while assuring that all support will be provided by the government to the company.
What is this PLI scheme?
The Centre approved a PLI scheme (Production-Linked Incentive) of Rs 26,058 crore for the electric vehicle space to boost domestic manufacturing. The auto component sector covered under the PLI scheme includes- electronic power steering system, automatic transmission assembly, sensors, sunroofs, super-capacitors, adaptive front lighting, tyre pressure monitoring system, automatic braking, tyre pressure monitoring system, and collision warning system. The approved PLI scheme for the auto sector is part of the overall production-linked incentives announced for 13 sectors in the Budget 2021-22 with an outlay of Rs 1.97 lakh crore.
The Union Government expects the PLI scheme for auto industry to bring fresh investments of over Rs 42,500 crore in five years and incremental production of over Rs 2.3 lakh crore. It would also help create an estimated additional employment of over 7.6 lakh people. To avail incentives, auto companies will be required to make investments of Rs 2,000 crore of new investments over five years, whereas 2-wheelers & 3-wheelers have to make investments of Rs 1,000 crore. The component makers will have to make investments of Rs 500 crore over five years under the PLI scheme. The PLI Scheme for auto sector is open to existing automotive companies as well as new investors who are currently not in automobile or auto component manufacturing business.
115 companies, both domestic and global, have filed applications under the production-linked incentive (PLI) scheme so far for the automobile and auto component industries. These include the likes of Maruti Suzuki, Tata Motors, Mahindra Group, MG Motor, Bajaj Auto, Hero MoroCorp and TVS Motor are among the applicants. The scheme will be effective from FY23 and the base year for computing sales value would be FY20.
There is also FAME
The government is also prioritizing the shift towards clean mobility, and recent moves to amend the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) II scheme is a case in point. On June 11, 2021, the Ministry of Heavy Industry announced further amendments to the FAME II scheme to give a boost to EV demand among consumers. Under the revised policy, the subsidy per electric two-wheeler (Indian-made), which is linked to the battery size, has been increased to Rs 15,000 (US$204.60) per Kilowatt-hour (KWh) from Rs 10,000 (US$136.40) KWh. Also, electric two-wheeler manufacturers can now give discounts of up to 40 percent to consumers, which is a significant raise from the previous cap of 20 percent.
“Under the phase two of the FAME scheme, about 1,65,000 electric vehicles have been supported, as on November 25, 2021, by way of demand incentive amounting to about INR 5.64 billion (US$75.16 million). Further, under the scheme, approvals have been granted for 6,315 electrical buses, 2,877 EV charging stations amounting to Rs 5 billion (US$66.63 million) in 68 cities across 25 states/Union Territories and 1,576 charging stations amounting to INR 1.08 billion (US$14.39 million) across nine expressways and 16 highways,” noted India Briefing in a report.
The government has revised GST for Indian EV makers to 5% as compared to the 29-50% range applicable for internal combustion engines vehicles. There is no special support for EVs which are not manufactured in India as of now, which is why perhaps the government has not yet given into any demands made by Tesla. The focus right now is Make in India, and not Import into India.
States line up the red carpet, but Tesla doesn’t want to set up shop just yet
And, taking advantage of this tiff, leaders from four different states -Telangana, Maharashtra, Punjab and West Bengal- tweeted over the weekend, offering the red carpet welcome to Musk, be it infrastructure, sustainability or a streamlined approval process.
Telangana Industry and Commerce Minister KT Rama Rao was the first to invite Musk. He wrote: “Will be happy to partner Tesla in working through the challenges to set shop in India/Telangana. Our state is a champion in sustainability initiatives & a top-notch business destination in India”. His pitch was followed by Maharashtra State Water Resources Minister and State NCP chief, Jayant Patil. “Maharashtra is one of the most progressive states in India. We will provide you with all the necessary help from Maharashtra for you to get established in India. We invite you to establish your manufacturing plant in Maharashtra.” he said. Soon enough, Punjab Congress Chief Navjot Singh Sidhu tweeted: “Punjab Model will create Ludhiana as a hub for Electric Vehicles and Battery industry with time-bound single window clearance for investment that brings new technology to Punjab, create green jobs, walking path of environment preservation and sustainable development”. Soon enough, West Bengal minister Md Ghulam Rabbani invited Musk to “drop here” and set up his business in the state. “Drop here, we in West Bengal have best infra & our leader @MamataOfficial has got the vision. Bengal means Business.”
Point to note: India’s Ministry of Road Transport and Highways approved four Tesla variants for local sale in 2020. Tesla has even got a retail space in Mumbai, a registered an office in Bengaluru and support sales staff in the country. But it is yet to play ball when it comes to set up manufacturing in the country. Also, setting up car factories in India could be difficult even for local companies without any government support, as red tape, land acquisition and labor rights remain a constant challenge. In 2008, Tata Motors was forced to abandon a near-complete facility in West Bengal after violent protests by farmers against land acquisition, thwarting its attempt to build the Nano, the world’s cheapest car, in the state.
Gadkari has also warned Musk against shipping vehicles built at its Shanghai plant for sale in India. “You should manufacture electric cars in India and also export cars from India,” Gadkari had said last year. If Musk agrees to do that, Gadkari said he assured the CEO that Tesla will receive significant government support.
There is also intense competition for Tesla
Mercedes-Benz is roll out a locally assembled EQS — the electric version of its flagship S-Class sedan — in India by the fourth quarter.
Tata Motors, which has cornered 70 percent of the electric vehicle market so far in India, wants the Centre to treat all electric vehicle manufacturers equally after Tesla demanded a reduction on import duties. P Balaji, CFO at Tata Motors had said last year, “From Tata Motors’ perspective, the Indian government through the FAME II incentives, eligibility criteria have been very clearly set for the direction in which the country should take to accelerate the adoption of EVs.This has always emphasised affordable EVs and also localisation as per the phased manufacturing plans.” Currently Tata Motors offers two electric cars in India – the Tigor EV and the Nexon EV. It plans to launch at least 10 new electric vehicles in the next four years.
Mahindra & Mahindra too has stated that an import duty cut would be unfair when the government’s priority is Make in India.
South Korean auto major Hyundai Motor Company, which holds a dominant share in the Indian car segment, has also launched its first EV, The Kona Electric, to tap the newly formed demand in this sector in India while Mahindra Electric is already manufacturing EVs such as eVerito and eSupro.
Charing infra a challenge: In a developing country like India, charging Infrastructure that is needed to jump on the EV trend is still in a nascent stage even though the government is trying to develop the infrastructure at the earliest.
Not just EVS, Musk’s Starlink is in trouble too:
Last month, Department of Telecommunications (DoT) and sector regulator pulled up Musk owned Starlink ( Indian arm of SpaceX) for taking pre-bookings without any licence or authorisation to offer satellite broadband services in India. Starlink had to refund the $99 (Rs 7,400 approx) it had collected as deposits from each of the 7,000-odd Indian citizens who had pre-booked its upcoming broadband from-space services, following which the company’s head of India operations Sanjay Bhargava resigned.
Problems similar to Apple?
Musk’s India problems are similar to what Apple faced when it wanted to enter the Indian market. Back in 2017, the then commerce minister Nirmala Sitharaman had rejected Apple’s demand for import duty concessions on capital equipment, components and consumables as a condition to set up a manufacturing base in India. Sitaraman had also rejected the company’s request for a relaxation on the 30 per cent local sourcing condition for foreign direct investment in single-brand retail stores. In three years, Apple notched a 68 per cent jump in iPhone sales in 2020, while in the first three months of 2021, the iPhone 11 and the iPhone 12 were the top-selling premium handsets. This helped Apple capture nearly a third of the premium market.
Apple started by assembling and manufacturing iPhones locally, devoting itself with the ‘Make in India’ programme , following which it began expanding its retail presence. It then began to gain the market share by lowering prices, either through domestic manufacturing or by sacrificing margins. The company had put together an India team in 2018 and lobbied with the government through negotiations for three years to convince India to tweak FDI rules for single-brand retail.
With inputs from Agencies