The Indian government wants electric car maker Tesla Inc. to commit to source at least $500 million from local manufacturers in India to avail an import tax cut on its vehicles, reported Bloomberg. The report said that Tesla has been given the condition that it can start procuring local auto parts at a lower base.

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Tesla would need to agree to scale up Indian parts purchases by around 10% to 15% a year until a satisfactory level was achieved. Prime Minister Narendra Modi led administration has formally told Tesla to ramp up domestic sourcing but has not given any procurement target to the company yet. In August 2021, Tesla claimed it sourced auto parts of around $100 million from India for its electric vehicles, as reported by Bloomberg.

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The electric carmaker wants to test waters by selling imported cars as completely built units (CBU) models and to make that viable it seeks a reduction of levies as high as 100%.

The pricing of the CBU Tesla cars will be significantly high and India is a value-conscious auto market. Electric Vehicles are just 1% of cars sold annually.

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The government wants the EV pioneer to make cars in the country but appears to be using their interest to try and gain benefits for the nascent local electric car industry.

According to the Bloomberg report, Tesla must approach the government with a component-sourcing plan to progress on its tax-cut bid. It should also export made-in-India parts to China if it plans to import cars from there.

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In July 2021, Tesla founder and CEO Elon Musk tweeted that import duties in India are among the highest in the world and the nation treats clean-energy vehicles the same as gas-guzzling cars, which is not in line with its carbon neutrality goals.

India has asked Tesla to avoid selling China-made cars in India due to the long-time border dispute between China and India, according to Road Transport Minister Nitin Gadkari.

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Earlier this month, India rejected Tesla’s call for lower taxes to import electric cars, saying existing rules already allow partially-built vehicles to be imported and then assembled locally at a cheaper levy. Parts shipped for assembly in the nation attract 15% to 30% import duties, while there are taxes as high as 100% on importing completely built vehicles.