Indian government wants Tesla to buy US$500 million of local car parts

The backstory:

• Several foreign carmakers, like Ford Motor Company, have exited the Indian market over the past five years. It’s reported that all the different government regulations, fees and processes, along with relatively minimal industrial infrastructure, meant that it wasn’t as simple as just moving in and setting up a shop.

• India’s government said it’s working on the issue and launched the “Make in India” campaign in 2014 to cut through red tape and build up infrastructure so that India’s manufacturing industry would ultimately grow.

• But even though the government has been pushing for this, the Gross Domestic Product (GDP) value of manufacturing is at its lowest point since the 1960s.

• It was revealed by sources familiar with the matter that the Union Government has asked Tesla Inc. to manufacture its vehicles in India to be considered for tax concessions.

• In a tweet where a user asked him to bring Tesla to India “ASAP,” Chief Executive Officer Elon Musk responded, saying: “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.”

• Electric vehicles (EV) only make up 1% of cars sold annually in India. And earlier this month, the government rejected Tesla’s call for lower taxes to import electric cars, saying existing rules already allow partially-built vehicles to be brought in and then assembled locally at a lower tax rate.

• But even though the federal government is giving Tesla a bit of a hard time, state governments seem more excited about the prospect of having Tesla in India. At least five states have pitched for Tesla to set up manufacturing in their provinces.

The development:

• According to an anonymous source familiar with the talks, Tesla needs to buy at least US$500 million worth of car components from India if it wants a decrease in import taxes on its vehicles to be considered.

• It doesn’t need to start at the US$500 million, though, and the company can increase as it goes, so long as the increase is around 10% to 15% a year until a satisfactory level is met.

• Last August, the company said that it sourced around US$100 million in parts from India.

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