‘Tesla scheme’ sputters, govt may extend deadline for foreign EV firms

The likely extension to the scheme, often called the Tesla scheme for its attempt to attract the US-headquartered electric vehicle (EV) giant to India, lays bare the difficulty of converting policy ambition and generous tax breaks into firm investment commitments.

Under the scheme to promote manufacturing of electric passenger cars in India (SPMEPCI), manufacturers investing $500 million in the country will get a massive import duty cut on fully-built models. If the company fulfils the investment criteria, the import duty on EVs priced over $35,000 will be down to 15% from at least 70%, with a cap on the number of units that can be imported. Original equipment manufacturers (OEMs) can import up to 8,000 completely built-up (CBU) units each year for five years under the scheme.

In June, the government had notified guidelines for the scheme and opened the investment window, expecting carmakers including Mercedes-Benz, Kia Motor India, Hyundai Motor India and Skoda-Volkswagen to participate. Elon Musk’s Tesla is a notable absentee, preferring to sell imported units in India from two stores, one each in Mumbai and New Delhi.

“There has been no interest yet. There is still a week to go and the government is likely to take up discussions on whether to extend the deadline for investments closer to the 21 October deadline,” said one of the two people cited above, requesting anonymity.

The second person cited above, who also did not want to be named, said multiple stakeholder consultations had happened with foreign electric car makers before the portal was opened, but none of them had committed any investment as of yet.

Queries emailed to India’s heavy industries ministry, the nodal ministry for the scheme, Tesla, Kia Motor India, Hyundai Motor India on 13 October, and to Skoda-Volkswagen on 12 October remained unanswered.

However, industry analysts say this does not imply India is a bad investment bet for EVs.

“India remains a favourable EV investment destination, as global automakers are taking other routes to set up manufacturing units in the country,” said Ashim Sharma, senior partner and business unit head at Nomura Research Institute Solutions and Consulting.

Vietnamese electric car maker VinFast set up a manufacturing unit in Tamil Nadu in August this year on the back of a favourable state EV policy. The company signed a ₹16,000 crore agreement with the state government, and began rolling out premium electric sports utility vehicles from the Thoothukudi unit. VinFast did not respond to a query emailed on 13 October.

Mint reported on 14 August about EV industry manufacturers, including makers of charging infrastructure, choosing to invest in specific states on the basis of their state EV policies, which have incentives for setting up factories and hiring locals.

In response to Mint’s query to Mercedes-Benz on whether the German automaker planned to invest under the scheme, a spokesperson said: “Mercedes-Benz locally produces two world-class BEVs (battery electric vehicles) at its state-of-art manufacturing facility in Pune, having sufficient capacity for the current market requirements. We have stated earlier as well that there’s no immediate plans for adding new BEVs to our local production portfolio.”

The spokesperson said the company’s cumulative investment of ₹3,000 crore was “the highest in the luxury car market, and this will be further augmented as a continuing process to bolster local production, introduce latest products and technologies, depending on future market demand, growth potential and market expansion for a high-priority market like India”.

India’s EV sales rose 17% in fiscal year 2025 (FY25), topping 1.9 million, data from the central government’s vehicle registry Vahan shows. Market intelligence firm Mordor Intelligence estimates India’s EV sector, currently valued at about $137 billion, to grow to more than $203 billion by 2030, with a current annual growth rate of 8.2%. Of the 1.9 million cars sold in India in FY26 till date, 4.8% or about 95,000 have been electric battery-operated cars. The share of electric cars among total cars sold in FY25 was 2.6% with just over 100,000 electric cars.

Indian electric car makers have also invested considerably in manufacturing locally and have committed to further scale up. Tata Motors, currently undergoing a split into two entities—one for passenger vehicles and another for commercial vehicles—had said in its June results and investor presentations that it was planning to invest as much as $4 billion in manufacturing in India. It also announced plans to launch eight more electric models, nearly doubling its portfolio to 15. Tata Motors makes electric cars, buses and trucks.

Anand Mahindra-led Mahindra & Mahindra Ltd had also announced plans to invest about ₹16,000 crore in its electric vehicles business in five years between FY22 and FY27. Mahindra & Mahindra makes electric cars, three-wheelers and smaller electric trucks.

These investments have also been buttressed by a policy push from the government, with the ₹25,938-crore production-linked incentive scheme for automobiles and auto parts (PLI-Auto), where manufacturers receive incentives for zero-emission vehicle sales on compliance with strict localization rules.

Localization rules refer to criteria for domestic value-addition set by the government, as a policy tool to diversify and strengthen domestic supply chains. It is calculated as the share of components and raw materials sourced locally. Half the value addition (50%) is required for PLI -Auto sops.

But these localization rules under the government’s scheme for foreign car makers might be the stumbling block here.

“The high standards of localization and the steep bank guarantee that has to follow the investment, may be factors which drove away some companies. They may have seen the import duty cut on a limited number of vehicles as too little of a reward, in return for a commitment,” said Sharma of Nomura Research Institute.

Under this scheme, carmakers have to achieve 25% localization within three years of setting up a manufacturing plant, and have to roll out units within this timeframe. In the subsequent two years, they have to ramp up localization to 50%.

If the foreign electric carmakers do not comply with these rules, they risk losing a hefty bank guarantee, which has to be at least $500 million or the amount of import duty foregone in the scheme’s runtime. To be sure, the maximum amount of import duty foregone is capped for each OEM at ₹6,484 crore, or the amount invested by the carmaker, whichever is lower.