Government Unveils EV-Policy: Slashes Import Duty for High-End Foreign Electric Cars to 15% for Five Years

The government announced on Friday a comprehensive overhaul of policies concerning high-end foreign-made electric cars. Under the new regulations, import duties for vehicles like Tesla and VinFast will be slashed to 15% for a period of up to five years, contingent upon the companies committing to invest a minimum of $500 million (equivalent to approximately Rs 4,150 crore) in local manufacturing.

This policy shift, spearheaded by the heavy industries ministry and the department for promotion of industry and internal trade, marks a departure from the government's previous stance of maintaining high customs duties in the automobile sector. Presently, cars priced below $35,000 are subject to a 35% import duty, while those exceeding this threshold face a hefty 100% levy.

According to a report of TOI, If Tesla chooses to participate in the scheme, the price of its most affordable vehicle, the Model 3, which starts at $38,990 in the US, would increase to approximately $45,000 (equivalent to over Rs 37 lakh) after factoring in the import duty. Additionally, the vehicle would be subject to a 5% Goods and Services Tax (GST), along with road tax and other applicable levies.

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The timing of the policy announcement is noteworthy, coming just 24 hours before the implementation of the model code of conduct for general elections. Discussions regarding this policy have been ongoing for several months. Last year, during talks with the government, representatives from Elon Musk's company indicated the possibility of utilizing India as a hub for manufacturing lower-cost vehicles for both the domestic market and export purposes. Elon Musk himself had met with Prime Minister Modi and engaged in discussions with Commerce and Industry Minister Piyush Goyal.

MG Motor, a Chinese company, aims to navigate FDI restrictions by teaming up with Sajjan Jindal. The Modi government's cautious stance on cross-border investments hasn't deterred MG. They plan to leverage a specialized framework for electric four-wheelers, requiring firms to meet investment thresholds in plant, machinery, and charging infrastructure. Approval entails furnishing bank guarantees, with manufacturing operations expected to commence within three years.

This has to be scaled to 50% in five years, the heavy industry ministry (MHI) said. Separately, the revenue department which cleared the scheme after a go ahead by finance minister Nirmala Sitharaman has notified the modalities. The scheme comes with the rider that a company can import a maximum of 8,000 cars annually, TOI reported.