Initially, Tesla's entry was anticipated to elevate India's standing in the global car market, which ranks third after China and the US. Currently, Tesla has manufacturing plants outside the US in Germany and China. With Western economies slowing down and Tesla facing strong competition in China, India seemed like a promising market.
However, in July, media reports suggested that Tesla might not move forward with any significant investment in India soon. Executives from Tesla ceased communication with Indian officials, and Bloomberg reported, citing unnamed sources, that Tesla is dealing with capital issues and is not planning fresh investments in India.
Maruti & Toyota don't like India wooing foreigners
Local carmakers have also likely influenced the government's potential decision to not court the foreign automakers, ToI reported. Indian and Japanese manufacturers like Maruti Suzuki and Toyota have been lobbying for similar benefits for hybrid vehicles. They argue that lower duty imports for foreign EV makers would negatively impact their investments.
Indian companies, such as Tata Motors and Mahindra, oppose the current EV policy. They believe that allowing lower duty imports, even for high-end markets, would harm their plans and investments. "So far, we have not heard much from the companies on the EV policy and investments. The chances look grim, though we are still hopeful and are maintaining dialogue with companies wherever required," a government official told ToI.
India's EV policy
On March 15, the government approved an EV policy under which duty concessions will be given to companies setting up manufacturing units in the country with a minimum investment of $500 million. Under this, a company will get three years to set up manufacturing facilities and start commercial production of EVs, reaching 50% domestic value addition within five years at the most. Companies setting up plants to make passenger EVs will also be allowed to import a limited number of cars at a lower import duty of 15% on vehicles costing $35,000 and above for a period of five years.
Local incumbents are mounting stiff resistance, leveraging their influence across several ministries related to automotive issues—including heavy industries, road transport, and commerce and industry. This opposition is likely to dilute the benefits for electric vehicles proposed under the free trade agreement with the UK, according to sources familiar with the discussions. The electric vehicle (EV) policy, which appears to be tailored to Tesla's specifications, has led the Elon Musk-led company to refrain from entering the Indian market as it navigates its own challenges and pressures from China. Critics have pointed to various shortcomings, such as high investment levels, local sourcing mandates, and "onerous investment commitments," arguing that the policy does not offer genuine advantages to them.
What foreign companies want from India
Several foreign companies already operating in India are requesting acknowledgment of their prior investments, insisting they should not be required to establish new factories to qualify for benefits under the EV policy. "We haven't received much feedback from companies regarding the EV policy and investments. The outlook is bleak, but we remain hopeful and are keeping communication open with relevant companies," a government official stated.
The campaign against EVs is primarily led by Maruti Suzuki and Toyota, which together dominate over half of the car market and represent the majority of hybrid sales as partners. These Japanese firms are believed to be actively lobbying at both the central and state levels to ensure that hybrids receive the same policy treatment as electric vehicles. Additionally, Tata Motors and Mahindra have expressed concerns that allowing lower duty imports at the higher end of the market could negatively impact their future plans and investments, a top government source reported.
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