No to BYD, yes to Tesla: India charts EV investment strategy cautiously

India seems to be restricting its electric vehicle market access to Chinese auto giant BYD while wooing the rival Tesla for investment in the country. This shows, the Indian government's lingering angst with China despite the recent signs of a thaw in the two neighbour's relationship.

Bloomberg has quoted Union Minister of Commerce Piyush Goyal saying that India has to be cautious about its strategic interests. “India has to be cautious about its strategic interests, who we allow to invest," Goyal said while speaking about India's course of EV investments.

In 2024, the Indian government rejected an investment proposal worth $1 billion from BYD. The Chinese automaker proposed to invest $1 billion with a local partner to set up an electric vehicle manufacturing plant in the country. This would have given the OEM a stringer footprint in the country's bulging electric vehicle market. However, with the government rejecting the proposal, the plan didn't materialise. Another Chinese carmaker Great Wall Motor also exited India after failing to secure regulatory clearance from the government.

Tesla has been showing keen interest in setting up shop in the country, while the Indian government too has been amending the rules to make space for the US electric vehicle manufacturer. Interestingly, during the Auto Expo 2025, Vietnam-based electric vehicle manufacturer VinFast too announced to invest heavily in India, where there has been no hurdle so far in terms of regulatory clearances. These instances come in stark contrast with the hurdles the Chinese OEMs have been facing in setting up shop in India.

Yes to US and EU, no to China

India aims to be a global hub for global electric vehicle production but high entry barriers, compared to 2.5 per cent for the US, 10 per cent in Germany, and up to 25 per cent in China, serve as a detriment. Major OEMs like Tesla have alleged the high tariffs of the country as a barrier to bringing their vehicles here as well as setting up business in the country. So far, the country has taken a hardline posture highlighting a broader protectionist approach to car imports.

With a steep tariff like 100 per cent import duty on Completely Built Unit (CBU) vehicles, which is by far the highest among major economies, India has long shielded the domestic automakers. However, with the free trade deals with the US and European Union looming ahead with expediting discussions between the governments, India is feeling mounting pressure to open up the third-largest global automobile market to foreign players.

Reuters has reported that the European Union wants India to eliminate tariffs on car imports under a long-pending trade deal. The report further stated that the Indian government is also willing to seal the deal. It quoted industry sources and a government official saying that India is open to the phased reduction of tariffs to 10 per cent from more than 100 per cent.

This pending and likely to take place move is despite the domestic industry players lobbying for India to retain at least a 30 per cent tariff even if the country starts reducing the levy in a phased manner. The Indian industry stakeholders are also lobbying the government to not tinker with import duties on electric vehicles for four more years to protect domestic players.

In recent times, with keen interest from Tesla, the Donald Trump administration slapping reciprocal tariffs and the US President himself pointing out the high tariff rates of India for imported vehicles, the country has made some key amendments in its EV investment policy over the last several months. This has possibly created the ground for Tesla entering the Indian market after a long wait. However, despite proposing a massive investment, BYD has not received regulatory clearance. “India has a lot of elbow room for trade deals with developed nations," Goyal said, adding that the country will be cautious about “dumping" from China.

Troubled waters ahead for homegrown EV players?

India's protectionist approach to car imports has helped domestic automakers to grow fast over the last few years, especially in the electric vehicle space. The local automakers have resisted any tariff relaxation that might allow foreign rivals to undercut them on price, especially as the government ramps up incentives for EV production. The high import duty that barred the foreign players from bringing their electric vehicles in the country in significant numbers, has helped homegrown auto OEMs like Tata and Mahindra to thrive. Tata Motors currently holds about 70 per cent of the Indian electric car market.

However, with the government hinting at a phased reduction of import duty, and looming free trade deals with the US and EU, the Indian automakers that currently have the upper hand in the country's electric passenger vehicle market may feel the pressure of heightened competition from the foreign players.

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