Should India cut import duty on EVs? India Inc responds to Tesla call

A tweet from Tesla CEO Elon Musk has triggered a debate in the Indian automobile industry.

Remarking about the current high levies that leave imports unviable, the billionaire said India should lower the import duty on fully-built electric vehicles (EVs). While players such as Hyundai India have concurred with Musk’s observation, others, such as TVS, Ola Electric, Maruti Suzuki and Tata Motors, have opposed duty cuts, saying the domestic EV sector needs policy support.

We want to do so, but import duties are the highest in the world by far of any large country!

Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India.

— Elon Musk (@elonmusk) July 23, 2021

It all started with a tweet from social media personality Madan Gowri, who wrote: “@elonmusk please launch Tesla cars in India ASAP!”

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Responding to the tweet, Musk wrote: “Import duties (in India) are the highest in the world by far of any large country! Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India.”

If Tesla is able to succeed with imported vehicles, then a factory in India is quite likely.

— Elon Musk (@elonmusk) July 23, 2021

Corporate leaders respond

The tweet led to varied responses from Indian corporate leaders, reflecting the deep differences in how they perceive the shaping of the domestic EV industry.

SS Kim, Managing Director of Hyundai India, backed the Tesla call for a duty cut. “Lower duties will help grow the EV market,” he told Autocar India in an interview. Hyundai India has extensive manufacturing facilities in India, with a plant each at Irungattukottai and Sriperumbudur in Tamil Nadu.

Bhavish Aggarwal, found and CEO of cab aggregator Ola, disagreed that India needs to encourage EV imports with duty cuts. “Strongly disagree with both (Musk and Kim). Let’s have confidence in our ability to build indigenously and also attract global OEMs to build in India, not just import. We won’t be the first country to do so!” he tweeted.

Strongly disagree with both. Let’s have confidence in our ability to build indigenously and also attract global OEMs to build in India, not just import. We won’t be the first country to do so! https://t.co/n6k7ShYeJX

— Bhavish Aggarwal (@bhash) July 27, 2021

Ola Electric, the company’s EV arm, is set to launch an e-scooter that drew over 1 lakh bookings in 24 hours. The company is planning a massive production facility in Tamil Nadu.

Support for local production

Venu Srinivasan, Chairman of auto giant TVS Motor Company, told MoneyControl: “We should encourage local manufacturing as envisioned by the government. I believe that importing CBUs (completely built units) would be detrimental for the future of Indian manufacturing.”

TVS entered the EV market in January 2020 with the launch of iQube, an e-scooter that was almost fully made in India. The group is planning an exclusive EV plant in Hosur.

Instead of slapping high customs duty on Tesla & Hyundai’s EV cars, we should invite them to start production in India w/mandatory 60-70% localisation of automotive parts from Indian vendors. This will help a lot of Indian MSMEs& generate employment, plus help meet climate goals. https://t.co/r1txKGtbeC

— Shashi Tharoor (@ShashiTharoor) July 27, 2021

Rajiv Bajaj, who heads another auto major, the Bajaj Group, was quoted as saying a middle path would work best. A duty cut would help grow the EV market till the domestic market matures and expands demand, the MoneyControl report quoted him as saying. Subsequently, local manufacture can be encouraged with a high duty structure, he added.

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“I favour a middle path, because for me the guiding principle is demand first and then supply,” said Bajaj, Managing Director of Bajaj Auto, as quoted by the report. “So up to a certain volume per year which may be different for different segments ranging from mass to premium, duties should be lower.”

Policy stability

It further quoted Maruti Suzuki Chairman RC Bhargava as saying: “The government policy is clearly in favour of local manufacturing and that applies to EVs also. There is no justification for changing this policy for any one particular product.”

Tata Motors, whose locally made Nexon EV enjoys a more than 50% share of the domestic EV market, threw its weight behind the call not to lower import duties. PB Balaji, the company’s Chief Financial Officer, was quoted as saying: “I am sure the government will remain consistent to the philosophy of phased manufacturing plans for EV and the principles of FAME II. This is what all of us are working towards. The companies who are investing in the EV segment are looking forward to long-term visibility of the policy.”

FAME — or Faster Adoption and Manufacturing of Electric Vehicles — is a Central scheme that aims to incentivise the local manufacture of EVs.