India is reportedly exploring a new electric vehicle (EV) policy that could significantly reduce import taxes for automakers willing to invest in local manufacturing after a proposal from Tesla eyeing the Indian market.

What Happened: The proposed policy might permit automakers to import fully-assembled EVs into India with a reduced tax rate, potentially as low as 15%, sources told Reuters.

Currently, cars that cost over $40,000 (₹33 lakhs) incur a 100% tax, while other cars attract a tax of 70%. Tesla’s popular Model Y, for example, starts at $47,740 (around ₹40 lakhs) in the US before tax credits.

An Indian government official told the news agency that the government has shown interest in Tesla’s proposal.

Tesla has been in talks with the Indian government for months, with many top executives reportedly meeting high-level government officials about local assembly and bringing its own supply chain to the country.

See Also: Elon Musk Says He ‘Looks Forward’ To Visiting India In 2024

Expectations for the top EV carmaker’s entry into India have been high ever since CEO Elon Musk‘s meeting with Prime Minister Narendra Modi during the latter’s diplomatic trip to the US.

Why It Matters: If this policy takes effect, it could significantly lower the cost of imported EVs, which would deal a blow to local automakers. It could also open the door for global automakers apart from Tesla to tap into India’s rapidly growing EV market, where EV sales currently account for less than 2% of total car sales.

Lower import taxes could enable Tesla to offer its full range of models in India, not just a new locally-produced car that the company has reportedly been planning.

Tesla has previously expressed its interest in establishing a local factory and producing a new EV priced at around ₹20 lakhs, which is about 25% cheaper than its current entry-level model, for both the Indian market and export.

However, the government is still proceeding cautiously with the policy proposal, as any reduction in taxes for imported EVs could disrupt the market and affect local players like Tata Motors and Mahindra & Mahindra, which are investing in domestic EV production, sources told the news agency.

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