Tesla has reportedly paused plans to enter the Indian market after failing to secure lower import taxes.

Three people familiar with the matter told Reuters that the US company also reassigned some of its domestic team and abandoned a search for showroom space in a decision that follows more than a year of unsuccessful talks with the Indian government. 

Tesla's intention was to first test local demand for its products by selling EVs imported from its plants in the US and China, at lower tariffs. The Indian government did not agree to that and insisted that Tesla committed to local manufacturing before benefiting from lower tariffs, which are as high as 100% on imported vehicles.

The unnamed insiders said that Tesla had set itself a deadline on February 1 to see if its lobbying bore fruit. After the Indian government did not offer a concession, Tesla reportedly put on hold plans to import cars into India. The sources added that Tesla had scouted for real estate options for months to open showrooms and service centers in major Indian cities like New Delhi, Mumbai and Bengaluru, but that plan is now shelved. 

They also noted that strong demand for Tesla's vehicles around the world and the deadlocked talks over import taxes lead to the shift in the company's strategy. 

In light of the failed negotiations, Tesla is said to have assigned additional responsibilities for other markets to a part of its small team in India. Neither Tesla nor an Indian government spokesman commented on Reuters' report.

In January, Tesla CEO Elon Musk said Tesla was "still working through a lot of challenges with the government" with regard to sales in India. 

India's Prime Minister Narendra Modi tried to attract foreign automakers to the country with a "Make in India" campaign, and transport minister Nitin Gadkari said in April that Tesla's proposal to import cars from China to India was not a "good proposition."

Tesla is interested in the Indian market for its huge potential, as the country of almost 1.4 billion people has a much lower car ownership rate than China, which has a similar population: 55% versus 71%, respectively, according to a 2019 survey from Rakuten Insight.

Dominated by Tata Motors, India's market for electric vehicles is small but growing; only a tiny fraction of the annual vehicle sales of about 3 million are EVs. Tesla's entry-level car, the Model 3, would compete in the luxury segment in the south Asian country.

Got a tip for us? Email: tips@insideevs.com