Tesla lands on the chopping block as India mulls hefty tax on luxury EVs

A tax panel in India has called for a sharp increase in consumer levies on high end electric vehicles that may have a bearing on sales for automakers like Tesla, BMW, Mercedes-Benz, and BYD, according to a government document.

The steep levies target vehicles priced above $46,000, according to the document, which comes as the government is pushing for Indians to buy domestic products as the US imposed high tariffs strain trade relations between the two countries.

The panel’s proposals align with India’s PM

The directive comes as Prime Minister Narendra Modi is looking at reforming the country’s tax system. Currently, India taxes all electric cars at 5%. Now, the Indian government has recommended hefty cuts in goods and services tax (GST) that could make everything from shampoos to electronics cheaper.

A key panel that has been tasked with coming up with rate suggestions to the country’s GST Council is in support of sweeping cuts to many items in line with the Prime Minister’s overhaul. The document that details the recommendations however shows that the panel has called for raising taxes on electric vehicles.

According to the document, the panel has proposed raising GST rate to 18% from the current 5% on electric vehicles that are priced at between 2 million and 4 million rupees which is equivalent to $23,000 to $46,000.

For cars that are above $46,000, the panel has also proposed raising the tax to 28% arguing that these vehicles are for the “upper segment” of the society and largely imported and not manufactured locally.

According to a government source familiar with discussions and cited by Reuters, the government has decided to do away with the 28% tax rate, leaving the GST Council with two options. The first is to increase the tax on electric vehicles to 18% while the second option is to put them in a newly planned 40% category that was created for certain high-end goods.

Foreign automakers will feel the pinch in India

The GST Council is expected to review the proposal at a meeting scheduled for September 3 to 4. The council is led by the federal finance minister and has members from all Indian states.

Meanwhile, in response to the Reuters article, the Nifty Auto index went down as much as 0.05% as local automakers Mahindra and Mahindra fell 3%. Tata Motors dropped 1.2%.

While the EV market in India is still small, accounting for 5% of total cars sold in April to July this year, its growth has been rapid. EV sales in the country surged 93% to 15,500 units during that same period.

“The uptake of electric vehicles is increasing, and while the low rate of 5% is to incentivise faster adoption of electric vehicles, it is also important to signal that higher-priced EVs can be taxed at higher rates,” said the document, detailing the tax panel’s recommendations.

With the latest proposal in the pipeline, domestic electric vehicle makers like Mahindra and Tata Motors may be affected, although their offerings above the 2-million-rupee range are limited.

However, foreign electric vehicle makers that have luxury offerings will be hit the hardest. For instance, Tesla recently launched its Model Y in India with a base price of $65,000, while Mercedes-Benz, BMW, and BYD also offer high end electric vehicles.

For Tesla, which entered the Indian market in July, it has already received fewer orders than it anticipated. The firm has recorded orders just above 600 since its launch in India.

The company plans to deliver 300-500 units from its Shanghai plant in 2025, with the first batch expected this month, targeting cities like Mumbai, Delhi, Pune, and Gurugram.

In July, Tata Motors led Indian EV market commanding about 40% market share while Mahindra followed at 18%. BYD holds 3% while BMW and Mercedes account for a combined 2%.

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