Tesla is unlikely to launch its vehicles in India anytime soon

Source: Live Mint  

Relevance:  Electric vehicles are necessary for pollution control and import substitution.   

Synopsis: India needs to ease its restrictive policies towards the import of electric vehicles.  

Introduction 

Last month, Elon Musk complain about India’s restrictive policies for the import of electric vehicles. India’s restrictive policies are aimed at the Make in India campaign for developing domestic industrial manufacturing.

Due to this policy, importing a kit of unassembled auto parts containing an engine and gearbox (15% duty) is much cheaper compared to importing a fully built car (100% duty).  

What are the issues attached to this policy? 

Capacity crunch: Importing unassembled parts of e-vehicles is not sufficient, precision and quality of manufacturing these vehicles, like Tesla, is very important. India hasn’t yet built up the necessary capacity to pull off large-scale output. 

Hurdles for foreign companies: On the other hand, foreign companies are also not interested in setting up manufacturing units in India, due to local content requirements.  

Misplaced efforts: The government has targeted 30% EV penetration by 2030, up from under 10% currently. Furthermore, it is making efforts to develop charging infrastructure in the country. However, very little efforts are made to encourage the manufacturing of EVs in India.  

Suggestions 

Reducing tariff on cheaper vehicles: Average household incomes are low in India; the overall market is dominated by more affordable scooters and motorbikes. Thus, India should allow cheaper electric two-wheelers from China, at a lower tariff.   

Lessons from China: Chinese also failed to create a high-quality, domestic auto industry, due to their unfocused subsidies and plans. However, with regard to EVs, they have evolved their policies.  

China kept its import tax rates for EVs relatively low at 25%. When China became a big source of sales revenue for Tesla, it set up a manufacturing plant there. At present, Tesla is exporting cars from its Shanghai factory to Europe.   

India must also come up with a new policy, suitable for present conditions. If big foreign companies like Tesla can help India in developing its EV manufacturing, then India should accept it with favorable policies.