The article first appeared in Economic Times on Mar 05, 2025.
The United States is actively pushing for the elimination of car tariffs in a proposed trade agreement with India. This move aims to create a more favorable market for American automakers, particularly electric vehicle (EV) giant Tesla. India currently imposes car tariffs as high as 110% on imported vehicles, a rate that Tesla CEO Elon Musk has repeatedly criticized as one of the highest in the world. The US sees these high import duties as a major trade barrier and is advocating for their removal to allow easier market access for American EV manufacturers.
Despite pressure from the US, India remains hesitant to immediately bring car tariffs down to zero. The Indian government is considering reductions but is cautious about fully eliminating them, as doing so could impact domestic automakers. Companies like Tata Motors and Mahindra & Mahindra have voiced concerns that lowering import duties could negatively affect local manufacturing, potentially leading to increased competition from foreign brands. However, in an effort to attract foreign investment, India introduced a new EV policy in March 2024, significantly lowering import taxes for automakers willing to invest at least $500 million and set up local production within a specified timeframe.
Tesla has long been eyeing the Indian market, but its entry has been delayed due to the country’s high car tariffs. In 2023, Tesla shelved its plans to enter India for the second time after failing to secure tariff reductions. However, the company has renewed its efforts, scouting locations for showrooms in key cities such as Mumbai and New Delhi. Tesla has also posted job openings in India, signaling its commitment to establishing a presence in the world’s third-largest car market.
The broader US-India trade negotiations extend beyond car tariffs and include discussions on increasing bilateral trade to $500 billion by 2030. While India acknowledges the need for more open trade policies, it is also focused on protecting its local industries. The Indian government’s stance on car tariffs will play a crucial role in determining Tesla’s future in the country and shaping the overall trade relationship between the two nations.
As negotiations continue, the outcome of these talks will significantly impact both the Indian and American automotive industries, setting the stage for a potential transformation in India’s EV market.
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