Niti Aayog Asks Tesla To Manufacture EVs In India, Promises Tax Breaks

Tesla and the Indian government are in a bit of a logjam. While Tesla has set up its Indian entity and started even testing its Model 3 and Model Y in the country, it is not even close to launching those models in India. The challenge is the 60-100 percent duty on completely built units (CBU) which in Tesla's case makes its most affordable car, the Model 3, quite uncompetitive in India considering its $40,000 base price in the US. Tesla's executives recently told the Prime Minister's Office (PMO) that it should release some of the taxes related to CBU units of emissions-free cars, but now the vice-chairman of the government think tank Niti Aayog, Rajiv Kumar has retorted that Tesla shouldn't just ship products to India from abroad as that will not create jobs in the country,

Kumar's comments came at the Public Affairs Forum Of India (PAFI), where he added that if it were to start manufacturing its cars, it would get all the tax breaks it wants.

Also Read: Tesla reaches out to PMO for tax breaks

The Niti Aayog vice chairman has indicated that Tesla will not get tax breaks for CBU products

"Come and manufacture in India, you (Tesla) will get all the tax benefits you want. The argument that we will create a market by exporting into India finished products... is an old argument and we have moved on from that," Kumar added.

His comments come on the back of Road Transport Minister Nitin Gadkari's comments where he urged the world's most valuable carmaker to start manufacturing operations in India. He said he had asked Tesla several times to start manufacturing and promised support will be provided by the Indian government. Even the heavy industries ministry had asked Tesla to start manufacturing with a promise of tax concessions being on the table.

However, Tesla CEO Elon Musk has gone on record saying that bringing Tesla to India is a challenge as its export laws are the most prohibitive in the world for an EV maker with extreme taxes. He has never talked about local manufacturing in India. Musk wants the government to standardize a tariff of 40 percent on CBU electric cars irrespective of customs value and withdraw a social welfare surcharge of 10 percent on electric vehicles.

Tesla has said if the government would do this then it would help the development of the EV market in India and the company would make significant direct investments in sales, service, and charging infrastructure apart from increasing procurement from India for its global operations. But even in this, there is no commitment towards manufacturing which is something important for the Narendra Modi government and its "make in India" scheme which has attracted many players in the consumer electronics business with even Apple now manufacturing older iPhones in India.

Elon Musk and his team have urged for tax breaks, but have never committed to manufacturing in India

If one looks at the pattern of the Indian government, it is unlikely to budge, but then again, for Tesla too, till it has a more affordable vehicle, this investment perhaps doesn't make sense. Even a base model Model 3 which costs $40,000 in the US costs Rs 30 lakhs where many entry-level luxury cars operate. Tesla has announced plans for a $25,000 hatchback for emerging markets but even at that cost, it will be a car that's more expensive than India's most popular EV, the Nexon EV, by Tata Motors.

Tesla currently has only three manufacturing facilities globally - one in California, one in Berlin, and one in Shanghai. If Tesla were to import its vehicles to India, likely the cars would come from its Chinese facility. That has its own share of issues, with the government discouraging companies from releasing made-in-China products wherever applicable. More actively, Tesla has been looking at Indonesia for manufacturing and Vietnam is also being looked at, while it is also making another Gigafactory in the US. But while Indian leaders have often said that Tesla is looking at manufacturing in India, no one from the company has backed up those claims.