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Tesla has to buy $500 mln of local parts in India to get import tax cut

Tesla has been requesting a reduction in import duties in India in order to begin operations there.

According to Bloomberg, the Indian government wants Tesla to acquire $500 million worth of local auto components in order to qualify for a tax break on imports. According to the article, Tesla has been given the stipulation that it can begin buying local car parts at a lesser cost.

Tesla would have to agree to increase its Indian component procurement by 10% to 15% every year until a sufficient level is reached. According to the report, the Indian government has explicitly instructed Tesla to increase local sourcing. Tesla, on the other hand, has yet to respond. Interestingly, Tesla stated in August 2021 that it sourced over $100 million in car parts for its electric vehicles from India.

Despite its strong desire to enter the Indian vehicle industry, the US-based electric manufacturer has been stymied by the high import tax rate.

The manufacturer intends to import its electric vehicles as CBU (completely built unit) models at initially. However, due to the high tax rate, the CBU Tesla automobiles will be substantially more expensive. Tesla has been requesting a tax decrease from the government, but the Indian government has shown little interest in doing so.

Instead, the government wants Tesla to build a factory in India and make its electric vehicles there. However, the automaker wants to gauge demand for its vehicles before committing to local production.

This has resulted in a standoff between Tesla and the Indian government over the automaker’s entry into the country. Elon Musk, the CEO of Tesla, has already expressed his discontent with India’s high tax rate. In such a scenario, the Indian government claims to have imposed a condition on Tesla in exchange for a reduction in import taxes. To do so, the automaker will need to source vehicle components made in India.