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Tesla’s wish for reduced import duties may impact others, say analysts

S Ronendra Singh New Delhi | Updated on July 26, 2021

Elon Musk recently tweeted saying the company wants to launch its products in India, but the import duties are too high.

American electric vehicle (EV) giant Tesla’s wish to get reduced import duties may impact investors or companies that have already been manufacturing in India; instead, the company should take the completely knocked down (CKD) route, experts tracking the sector said.

Although not officially, Tesla founder Elon Musk recently tweeted saying the company wants to launch its products in India, but the import duties are too high.

“We want to do (launch EVs in India) so, but import duties are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India,” he told an Indian fan when asked to launch Tesla cars as soon as possible.

But, analysts feel if duties are reduced, it will be unfair to others who have already invested in India.

“It will hurt domestic market production. Others have been paying 100 per cent import duties on their completely built units (CBUs) for ages…If the government is giving, then it should be in a phased manner — first few years and then they should invest in local production,” Gaurav Vangal, Associate Director at IHS Markit told BusinessLine.

He said it should not be blanket reduction for coming years and like an incubator, the government should lend its support specifically to EV makers and then they should walk on their own.

Generally, carmakers do not pass on the full benefits also to the customers and it will become more difficult to invest, if there is a reduction in the customs duty, he said.

“They must have not passed the complete benefit and it would be difficult to assess the exact benefit for agencies too. Therefore, CKD is the right step,” Vangal added.

Reduction in import duties

According to Saurabh Agarwal, Automotive Tax Partner, EY India, reduction in import duties on components of EVs during the initial phase and subsequent increase of customs duty in a phased manner can help in attracting the investors to set up manufacturing facilities in India.

“The direct fiscal incentives offered by the government in the form of increased FAME (Faster Adoption and Manufacturing of Hybrid and EVs) subsidy, introduction of PLI (production linked incentive) scheme for advanced chemistry cell and proposed PLI scheme for automotive sector would go long way in early adoption of EVs in India,” he said.

The analysts also said that with the luxury car makers getting more active in the recent past, there could be more favourable conditions for the whole EV space in the future, apart from the local governments already offering certain incentives to encourage buyers.

Recently, companies like Audi launched three variants of an EV — the e-tron priced between ₹1 crore and ₹1.18 crore in India — and they will be launching more EVs in the future. Mercedes-Benz has also announced that it will be ready to go all electric at the end of the decade, where market conditions allow.

Published on July 26, 2021

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