Tesla's $2 Billion

Tesla has submitted a comprehensive proposal to the government that shows how the amount of investment is related to the number of vehicles it can import at a reduced duty.

The company has expressed interest in investing up to $500 million in the event that India grants a tariff concession for 12,000 cars. Should the concession be extended to 30,000 cars, the investment could rise to $2 billion.

Tesla’s Investment Conditions: a Closer Look

Tesla also stated that it might promise to localise up to 20% of the value of cars made in India within two years and to raise that percentage to 40% within four.

The US electric car manufacturer Tesla, led by Elon Musk, is reportedly seeking to invest $2 billion in India in order to establish a domestic factory, but only if the Indian government agrees to impose a 15% concessional tax on the company’s imports for the first two years.

With a comprehensive plan that links the amount of investment to the number of vehicles it can import at a reduced duty, Tesla has presented the government with its offer. 

Authorities are investigating the feasibility of the $2 billion upper limit in the proposal. Government officials with knowledge of the situation also stated that the government is thinking about lowering the number of vehicles included in the concession proposal and exploring the possibility of imposing a concessional tariff on 10% of the total estimated number of electric vehicles (EVs) sold in India this fiscal year, with the possibility of increasing it by 20% the following fiscal year.

The government estimates that sales of electric vehicles (EVs) increased to approximately 50,000 in FY23 and are projected to reach 1,00,000 units by the end of FY24. 

Government Response and Evaluation

According to the ET report, the proposal is presently being jointly evaluated by the government’s Ministry of Finance, the Department for Promotion of Industry and Internal Trade (DPIIT), the Ministry of Heavy Industries, as well as the Ministry of Road Transport and Highways. The evaluation is being conducted under the direction of the Prime Minister’s Office (PMO).

India currently imposes a 100% import duty on cars costing more than $40,000 after insurance and freight and a 70% duty on cars costing less. In addition, in the event that the US automaker fails to allocate funds in accordance with its commitment, the government might demand a bank guarantee connected to the capital commitment in order to recover loss due to import duty.

According to the report’s sources, Tesla has asked the government to waive its requirement for a bank guarantee.

Implications for Indian Consumers: Potential Price Changes

According to the ET story, Tesla is getting ready to start operations in India by introducing three new cars: the Model 3, Model Y, and a new hatchback. These cars are priced in the US at $39,000 (Rs 32.37 lakh), $44,000 (Rs 36.52 lakh), and $25,000 (Rs 20.75 lakh), respectively. If the company is granted concessional import duty, insider information indicates that the Model 3 and Model Y may retail for approximately Rs 38 lakh and Rs 43 lakh in India, respectively.

The details of Tesla’s proposal and the government’s position on the subject were not previously public, but it is noteworthy that on November 21, Bloomberg revealed that Tesla may invest up to $2 billion.

As stated by senior government officials, initial talks with Tesla executives have already occurred, emphasising that Tesla usually builds a foundation with all of its suppliers. Since components are currently sourced from Indian suppliers, the expected investments are therefore expected to be significant. Details may change as a result of the ongoing discussions.

However, as previously stated, the central government will offer equal incentives to both domestic and foreign companies in order to promote local production of electric vehicles. Stated differently, it opposes exemptions for any particular company.

Anything that is conceded to Tesla in this kind of situation is probably going to be extended to the overall domestic industry.

The government and the EV behemoth were previously said to be finalising an agreement to begin Tesla operations in India in 2024. A final announcement regarding the deal is probably going to happen at the Vibrant Gujarat Global Summit in January 2024, even though additional details have not been made public. 

Indian consumers can expect to see the company’s first car model, the Model Y crossover, arrive this summer. The automaker intends to enhance its market share in India by doubling the amount of automobile components it imports from the nation.

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