Indian Government Rejects Tax Breaks for Imported Electric Vehicles, Dealing a Blow to Tesla's Mega Factory Plans

The Indian government has announced that it is not considering proposals for reducing taxes on imported electric vehicles. Som Parkash, the Minister for State for Commerce and Industry, made this declaration in parliament on Wednesday, dealing a direct blow to Tesla's plans for its mega factory in the country, which had sought tax breaks.

"The present stance is that there is no proposal to provide an exemption from local value addition cost or to offer a subsidy on the import duty for electric vehicles in India," stated the Minister of State.

As of now, Tata Motors holds the distinction of being the highest-selling electric car manufacturer in India, with its Nexon EV leading the electric car market.

Although MG Motors recently introduced its electric car in India, it has yet to match the success achieved by Tata Nexon EV.

The Indian government has been actively promoting local electric vehicle (EV) production, launching a $3.1 billion incentive program in 2021. Additionally, incentives are being provided to companies interested in manufacturing batteries within India, according to reports by Bloomberg.

The government's recent statement marks an unexpected turn, especially considering its previous efforts to formulate a policy allowing international companies to import electric cars at concessional tax rates, provided they commit to eventual manufacturing in India. This policy was reported by Bloomberg News last month.

Talks between Tesla and the Indian government were progressing towards an agreement that would have allowed the import of cars on concessional tax rates, with a commitment to local manufacturing in the future. Elon Musk, CEO of Tesla, had sought lower taxes to facilitate manufacturing in India.

In June, Musk expressed his company's interest in investing in India, but with the government's latest announcement, this plan could face delays.

Previously, the two parties were nearing an agreement that involved selling cars in India, manufactured abroad, starting in 2024. There were also discussions about establishing a mega factory in India within the next two years. However, these plans appear to be on hold for the time being.

Union Commerce Minister Piyush Goyal recently revealed that Tesla had plans to purchase parts from India worth $1.9 billion this year. The rejection of the import duty subsidy proposal adds a layer of uncertainty to Tesla's expansion plans in the country.