According to reports, Narendra Modi, the Prime Minister of India, is contemplating reducing import duties for electric vehicles (EVs) in an effort to attract a significant investment from Elon Musk, the CEO of Tesla.

The negotiations between the two have revolved around the requirement for Tesla to enter the Indian market. Musk has requested a substantial reduction in tariffs, which currently can double the price of his cars. Modi, on the other hand, has insisted that Tesla needs to manufacture its cars in India if it wants to sell in India.

The upcoming meeting between Musk and Piyush Goyal, the country’s commerce minister, seems to indicate a potential compromise.

According to Fortune, Indian government officials have developed a proposal that would cut EV tariffs to 15%. This 15% tariff would apply to all EVs, regardless of their price. This stands in stark contrast to the current tariff of 70% for cars below $40,000 and 100% for those above that threshold.

The tariff reduction would apply to all EVs, not only Teslas.

India’s booming car market has surpassed Germany and Japan in recent years. Therefore, gaining access to the Indian market is essential if Tesla is to attain its goal of selling 20 million EVs annually by 2030. Tesla anticipates that its 2023 sales will be only 1.8 million.

Meanwhile, India stands to gain substantial environmental benefits by embracing EVs. EVs substantially reduce air pollution, which is a major health problem in cities like New Delhi.

The state of the Indian EV industry

The Indian EV market is growing quickly. In the first nine months of 2023, year-over-year Indian EV sales more than doubled. Still, EVs represent under 2% of Indian car sales.    

Although entering India will boost Tesla’s sales, it may not be the game-changer that the company would hope.

India’s auto sector is notorious for slim profit margins. Unlike China, where larger sedans and SUVs are in demand, smaller cars are the popular choice in India. Automakers can’t make as much profit on small cars as they can on large ones.

In addition, India’s EV charging network is still in its infancy. India needs to increase its number of public chargers by roughly tenfold simply to properly service its current EV owners.

Image Source: Sawyer Merritt