Tesla’s plans to expand to India have been dealt a significant blow by the local government’s decision not to cut import duties on electric vehicles. 

The Indian government’s announcement came as a response to Tesla’s appeal to slash taxes and Elon Musk floating the possibility of a local plant once it starts selling EVs in India imported from overseas.

“No such proposal is under consideration in Ministry of Heavy Industries,” junior minister Krishan Pal Gurjar told parliament—the said ministry is in charge of making policies for the auto industry. Still, the official added that the government is taking steps to promote the use of EVs by lowering domestic taxes and adding charging stations.

According to Bloomberg, the government's reply to lawmakers could be seen as part of the tug-of-war between Prime Minister Narendra Modi’s administration and Tesla. The former wants to boost local manufacturing while the latter is urging India to allow it to import cars more cheaply before committing to building a factory in the country.

In a letter to India’s transport and industry ministries last month, Tesla requested for the import duty on electric cars to be cut to 40% from the current range of 60%-100%.

In a subsequent tweet, CEO Elon Musk said a Tesla factory in India is “quite likely” if the EV manufacturer can first begin sales with imported vehicles. The executive argues that Tesla wants to test the waters first in one of the world’s most-promising automobile markets, and complains that Indian rules prohibit him from doing so as high duties make Tesla cars “unaffordable.”

In India, Asia’s third-largest economy, EVs make up less than 1% of annual car sales, compared with about 5% in China. The undeveloped charging infrastructure and high prices have deterred large scale adoption of electric vehicles in India. Only 5% of cars sold in India are priced about 1.5 million rupees ($20,225), making EVs a tough sell—especially since the yearly per capita income in India is only $2,000.


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