India May Modify New EV Policy Before Elon Musk Drives In Tesla

The government may soon modify the terms of a policy that promotes manufacturing of electric cars in India, in a bid to attract the likes of Tesla Inc., to make and sell in the world’s third largest automotive market.

The tweaked EV policy may mandate carmakers to show a turnover of Rs 2,500 crore in the second year itself, people aware of the matter told NDTV Profit. The draft policy, released last year, suggested a revenue target of Rs 5,000 crore by the fourth year and Rs 7,500 crore in the fifth year. 

The draft policy also mandated a concessional import duty of 15% on electric cars for five years, against an initial investment of at least $500 million (Rs 4,150 crore).

The assets turnover ratio is 2.5, which means that an investment of Rs 4,150 crore has to produce a revenue of Rs 10,500 crore within the first five years, one of the persons cited above said. The initial investment cannot be for acquisition of land and construction of a building on the premises, but up to 5% can be set aside for developing charging infra. The funds can also be allocated for setting up new assembly lines in existing factories.

The Union Ministry of Heavy Industries, which is the nodal authority for the EV policy, is hammering out the details with the finance and commerce ministries, after inputs from stakeholders, the people said.

The government is likely to notify the tweaked EV policy mid-March after the deliberations are complete, following which, applications will be invited, the people said. The approvals are likely by August, which will pave the way for imports to begin soon after.

On March 15, 2024, the government had first approved a scheme to promote India as a manufacturing destination for electric vehicles.

Global carmakers, which invest at least $500 million in India to set up local operations, will enjoy a lower customs duty of 15% on completely knocked-down units on import of electric cars priced at $35,000 and above. This will be applicable for five years, provided the carmaker starts manufacturing locally within three years of the initial investment.

A total of 40,000 electric cars in five years—or 8,000 units per year—can be imported at the reduced customs duty. The carryover of unutilised annual import limits is permitted.

Additionally, the carmaker has to achieve 25% localisation within three years, and 50% by the fifth year, of starting operations in India.

The deliberations come against the backdrop of Tesla’s likely entry into India, following a meeting between Chief Executive Officer Elon Musk and Prime Minister Narendra Modi earlier in February.

“Had a very good meeting with @elonmusk in Washington DC. We discussed various issues, including those he is passionate about, such as space, mobility, technology and innovation,” Modi said in a post on X on Feb. 13. “I talked about India’s efforts towards reform and furthering ‘Minimum Government, Maximum Governance’.”

Since then, things have moved at a fever pitch.

On Feb. 18, Tesla listed 13 job openings in India, relating to sales and service operations in Delhi and Mumbai. A couple of more jobs — PCB Engineer and Charging Developer — were added later for Pune and Mumbai.

On Feb. 19, NDTV Profit reported that Tesla is likely to start its retail operations in India in the second half of 2025, with two showrooms in New Delhi’s Aerocity and Bandra Kurla Complex in Mumbai. The Model Y is likely to be the first model on sale here.

To be sure, Tesla has flirted with entering India before — the Model 3 and Y were brought in for testing in 2021 — only to pull back over high tariff rates. That US President Donald Trump sees the country as a “tremendous tariff maker” doesn’t help matters either.

The Narendra Modi administration has moved quickly to fix this.

In the Union Budget 2025 announced on Feb. 1, Finance Minister Nirmala Sitharaman cut import duty on completely built-up cars priced $40,000 or higher to 70% from 125% earlier. But the effective tax rate remains at 110%. The EV policy proposes to reduce import duty on electric cars to 15%, but that’s only for completely knocked-down units so far. Meaning, a carmaker will enjoy the reduced tariff only if it assembles in India.

But Tesla is unlikely to do that for its India entry.

According to people aware of the matter, the US carmaker will import fully built cars from its Berlin plant, as local assembly operations aren’t planned any time soon. Tesla, at present, has three facilities—one each in Texas, Berlin and Shanghai.

“They met, and I assume he wants to do business in India,” Trump said of Musk after the CEO’s meeting with Modi. “I would imagine he met possibly because, you know, he’s running a company.”

“Now if he builds the factory in India, that’s okay, but that’s unfair to us. It’s very unfair,” Trump said during an interview with Fox News on Feb. 19. Musk was by his side.