According to Reuters, a government document reveals that India's electric vehicle (EV) policy will offer import duty exemptions to foreign automakers investing in India. However, it will impose strict limits on the proportion of investments allocated to charging infrastructure, aiming to boost the country's domestic automobile manufacturing industry.
Last year, India announced a policy designed to attract U.S. EV manufacturer Tesla to produce electric vehicles in the country. The policy allows foreign automakers like Tesla to export cars to India at a significantly reduced import duty rate of 15%, compared to the current rate of around 100%. However, this benefit is contingent on these automakers investing at least $500 million to establish manufacturing facilities in India.
However, according to a confidential government document outlining the draft regulations, which Reuters has reviewed, the Indian government may stipulate that investments in charging infrastructure can only account for up to 5% of the total EV investment commitment. This means that even if companies invest more in charging networks, they will not receive additional tax exemptions. A draft document from January 2025, spanning 47 pages, states: "Expenditure on charging infrastructure will be considered up to a maximum of 5% of the committed investment." Sources indicate that this decision is intended to ensure that companies prioritize domestic vehicle manufacturing over charging infrastructure.
The Indian government's restriction on charging infrastructure investment may disappoint automakers that plan to allocate more funds toward building charging networks, as India's charging network remains sparse and unevenly distributed. In India's nascent EV market, many potential buyers hesitate due to the lack of fast-charging facilities.
The new draft rules also set strict performance benchmarks: companies committing to EV production in India must achieve a revenue of at least $577 million by the end of their fourth year of operations in India, increasing to $866 million by the fifth year. These benchmarks are required to qualify for the reduced 15% import duty rate, but the number of EVs eligible for the tax break is capped at 8,000 units. If automakers fail to meet these targets, they will be subject to penalties ranging from 1% to 3% of the revenue shortfall.
Sources state that the Indian government is currently consulting with automakers and other stakeholders regarding the draft rules and plans to finalize them next month.
India's Ministry of Heavy Industries, which is leading the formulation of the new policy, has not yet responded to requests for comment.
The government's plan coincides with Tesla's imminent entry into the Indian market through vehicle exports. Tesla has already selected two showroom locations in India and plans to sell imported vehicles in the country. In a job posting last week, Tesla announced it is also seeking a "Charging Developer" to oversee the planning and deployment of new charging stations.
Last year, Tesla CEO Elon Musk paused the company's investment plans in India due to a global decline in EV sales. Musk, along with former U.S. President Donald Trump, has repeatedly criticized India's high import tariffs on foreign vehicles.
Additionally, other foreign automakers such as Hyundai and Toyota have expressed interest in producing EVs in their existing and new manufacturing plants in India.
