India is reportedly crafting a new electric vehicle (EV) policy that could significantly reduce import taxes for automakers willing to engage in local manufacturing. This move follows a proposal by Tesla, which has expressed interest in entering the Indian market. If implemented, the policy could permit automakers to import fully-built EVs at a reduced tax rate of as low as 15%, compared to the current 100% tax for cars costing over US$40,000 and 70% for others.

This development could substantially lower the cost of imported EVs and potentially attract global automakers beyond Tesla to tap into India’s burgeoning EV market. Currently, EVs constitute less than 2% of total car sales in India, but this figure is rapidly increasing. The policy change might enable Tesla to offer its full range of models in India and not just the local production.

However, Indian officials have indicated that the policy will undergo careful consideration to avoid disrupting the market and affecting local players like Tata and Mahindra, which are investing in domestic electric car manufacturing.

Tesla has previously attempted to enter the Indian market by urging officials to lower the 100% import tax on EVs. Talks between Tesla and the Indian government faltered last year over the requirement for local manufacturing commitments. More recently, Tesla has expressed interest in establishing a local factory to produce an affordable EV model priced around US$24,000 for the Indian market and exports.

Prime Minister Narendra Modi, who engaged in discussions with Tesla CEO Elon Musk, is closely monitoring progress. While there are no special incentives for Tesla’s market entry, the proposed low import tax, contingent on manufacturing commitments, aims to strike a balance between both sides’ interests. Tesla is reportedly exploring the possibility of a fully operational India factory by 2030.