In a significant policy shift, India has announced a reduction in import taxes on certain electric vehicles (EVs), setting a new threshold for companies eyeing the South Asian market. The move, likely to boost Tesla’s entry plans into India, requires companies to invest a minimum of $500 million and establish local manufacturing within three years.

Under the new policy, firms meeting these criteria will benefit from reduced import duties, importing up to 8,000 EVs annually at a duty of 15% for cars priced at $35,000 and above. This marks a stark contrast from India’s current tax structure, which levies a hefty 70% to 100% tax on imported cars.

The decision aligns with India’s broader agenda to promote electric vehicle adoption and curb reliance on oil imports, with a target of achieving 30% electric car sales by 2030. The Ministry of Heavy Industries hailed the move as one that would foster technological advancement, support local manufacturing initiatives like “Make in India,” and mitigate environmental concerns such as air pollution.

For companies investing at least $800 million, the import quota increases to 40,000 EVs annually, with a maximum of 8,000 units per year. This move aims to encourage larger investments and facilitate greater market penetration for EVs.

Tesla, led by entrepreneur Elon Musk, has been eyeing India for years, with initial plans for local operations in 2021. However, negotiations stalled until India agreed to allow Tesla to sell and service imported cars in the country. Analysts anticipate Tesla’s entry by importing EVs from China initially, with plans to establish local manufacturing and battery plants in the near future.

India’s burgeoning EV market has also attracted other players like VinFast from Vietnam and Lotus Cars from China. VinFast recently announced a $2 billion investment, while Lotus Cars entered the Indian market in partnership with a local importer.

Despite these welcoming policies, India’s car market remains dominated by two-wheelers, with Tata Motors and Mahindra & Mahindra leading the local automotive sector. However, the revised tax policy signals India’s openness to foreign investment and its commitment to transitioning towards sustainable transportation solutions.