States Line up to Woo Elon Musk as Tesla facility war Heats Up

There is a virtual competition among the Indian states to roll out the red carpet to welcome Elon Musk of Tesla to set up an electric car manufacturing facility in their state. For any Indian state, getting Tesla to invest in their state would be a coup of sorts. It will automatically become a magnet to draw scores of such global technology and alternate energy giants into that state. Till date, Musk has been relying heavily on China for his manufacturing plans.

In the last few years, Tesla has been among the biggest value creators which also resulted in Elon Musk emerging as the wealthiest individual by virtue of his holdings in Tesla. Elon Musk is also the promoter of SpaceX. The competition among the Indian states started in full swing after Elon Musk tweeted that he was facing some grass root level challenges in setting up his operations in India.

Initially, it was KT Rama Rao of Telangana who rolled out the red carpet for Musk on Twitter. This was followed by other states like Maharashtra, Punjab and even West Bengal rolling out the red carpet to Musk to set up the facility in their state promising all possible support including duty drawbacks and other incentives.

States like Maharashtra have promised Musk full partnership in the process from the government. On the other hand, Punjab has gone a step ahead and even offered single-window clearance for any investment that brings a new technology to the state. Of course, it remains to be seen how Musk resolves the current challenges faced in India and eventually which state he opts for.

The big roadblock for Tesla to manufacture in India is the extremely steep rates of duties levied on manufacture of automobiles. The rates of duty in India are 60% for vehicles with CIF value of up to $40,000 and 100% duty for vehicles valued above that. All the models of Tesla would automatically fall in the 100% duty category. Tesla has been of the view that the level of duties were a disincentive and would make his vehicles unviable.

One reason Musk has not really responded to any of the states is that imports duty are not in the purview of state governments, They come under the ambit of the central government and only the centre can provide any sort of clarity on this subject. Once that issue is resolved, it is observed that most auto companies prefer states where the existing ecosystem and value chain is best developed. But, that is still some time away.