India could reduce customs duty on US-built EVs

Concerned about the potential impact of its trade war with the US, India is looking into further opening its market, starting with the auto industry. Initially, the country may lower customs duties on US-built electric cars to appease the Trump administration.

After severely penalising imported cars with steep tariffs primarily to protect the domestic auto industry for decades, India could somewhat open up its auto market, a new report from Reuters suggests. The country plans to reduce import tariffs on electric cars imported from the US as part of a trade deal it is discussing to ease the trade tensions with its largest export market.

Domestic automakers are urging the government to gradually lower tariffs on EVs and only after 2028, eventually reaching 30%. Until now, domestic automakers have successfully lobbied the government to resist reductions. Now, the latter appears determined to proceed with the plan, given the tense trade situation.

“We have protected the auto industry for far too long. We will have to open it up,” a government source said. Without disclosing a specific percentage, he revealed that India could reduce tariffs on EVs ‘significantly’. Currently, the country levies a customs duty of up to 110% on imported EVs. On Wednesday, the US announced a 26% tariff on India— lower than the 34% rate on China but still substantial.

Tesla stands to gain the most from a potential tariff reduction in India. The company has tried to enter India for more than a decade but has repeatedly abandoned its plans because of high tariffs. With India warming up to imports amid the US government’s recent crackdown on nations with large trade deficits, and co-founder and CEO Elon Musk’s favourable relationship with US President Donald Trump, the company may finally be able to set up shop.

Local reports suggest Tesla is already in the final stages of launching its EVs in India and could begin deliveries as early as next quarter. The company is likely waiting for the Indian government to announce the tariff reduction on US-built EVs. Legacy brands like Ford and Chevrolet pulled out of the tough-to-crack emerging market long ago, but the Blue Oval still maintains a local manufacturing presence and could eventually consider a return.

Parallel to the trade deal with the US, India is negotiating a free trade agreement with the EU and the UK. If it reduces the customs duty on US-built cars, the EU and the UK may demand similar preferential treatment. In fact, the EU has been proposing this for more than a decade.

reuters.com (India), reuters.com (US tariffs)