In a strategic move aimed at bolstering India’s burgeoning electric vehicle (EV) market, the government has unveiled a progressive electric vehicle policy, enticing foreign manufacturers such as US-based Tesla and Vietnamese automaker Vinfast to set foot in the country’s nascent electric car segment.

The policy, outlined in a recent gazette notification, offers substantial incentives for automakers intending to penetrate India’s EV landscape. Notably, foreign EV manufacturers are now eligible to import up to 8,000 electric vehicles annually, priced at $35,000 or higher, at a significantly reduced import duty of 15%, down from the previous 70%. However, this privilege is contingent upon a substantial commitment from manufacturers, requiring them to invest a minimum of $500 million in India over the ensuing three years. Crucially, beneficiaries of this scheme must initiate local manufacturing operations, ensuring a 50% Domestic Value Addition (DVA) in the vehicles manufactured within the country within the stipulated timeframe, with the target escalating to 50% by the end of five years. Oversight of this initiative falls under the purview of the Ministry of Heavy Industries (MHI). While indigenous automotive giants such as Tata Motors and Mahindra & Mahindra have advocated for a higher price threshold of $35,000 and above to safeguard their existing investments and market competitiveness, the government’s decision heralds a significant opportunity for global players like Tesla to enter the Indian market.
Tesla, which had been negotiating for a duty reduction to accommodate its planned $25,000 EV model tailored for markets like India, is now poised to introduce its flagship Model 3, priced at approximately $40,000 globally, into the Indian market. Concurrently, the company is expected to embark on localisation efforts to align with its India market entry strategy. This policy manoeuvre, deftly orchestrated just ahead of the anticipated announcement of the model code of conduct for the impending general elections, underscores India’s proactive stance in attracting foreign investment while preserving the interests of the domestic automotive sector.
Moreover, as a precautionary measure, the government has mandated bank guarantees equivalent to the reduction in import duties on vehicles from manufacturers. These guarantees will only be relinquished upon fulfilment of all criteria outlined in the scheme within the stipulated five-year timeframe. In essence, India’s concerted efforts to streamline its EV policy framework serve as a testament to its commitment to fostering innovation, attracting global investment, and positioning itself as a prominent player in the global electric mobility landscape.
“Domestic automakers won’t be adversely impacted because of the high price point cut-off. At a maximum cap of 8,000 cars a year, only early adopters and affluent buyers will buy these cars. Even with the reduced subsidy, a $35,000 EV will cost somewhere north of ₹40 lakh at the retail level, where the market is anyway extremely small,” a senior executive said on condition of anonymity. “However, the move is going to send a strong signal of confidence down the entire ecosystem, and the entry of an OEM like Tesla will also bring greater competitiveness in the industry,” he added.