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New tax cuts from India could be the key Tesla<\/a> and its EV competitors need to unlock the world\u2019s third-largest auto market\u2014but only if the government backs off on limiting sales.<\/p>\n For years, India has levied prohibitively high tariffs\u2014as much as 100%\u2014on imported foreign EVs. That means cars such as Tesla\u2019s Model 3, which retails for $38,990 in the U.S.<\/a>, would cost almost $80,000<\/a> in India. (Largely because of the tariffs, Tesla currently doesn\u2019t sell any vehicles in the country<\/a>.)\u00a0<\/p>\n But last Friday, India\u2019s Ministry of Heavy Industries announced it would be rolling back tariffs<\/a> for foreign EV manufacturers who commit to setting up manufacturing operations in India. If automakers invest a minimum of $500 million in India-based manufacturing, taxes on their vehicles will drop to just 15%<\/a>, and down to zero if the car retails for less than $35,000.<\/p>\n However, under the new rules, foreign EV makers\u2019 sales are capped at 8,000 cars per year if they take advantage of the program. Tesla\u2019s declining sales in China have made headlines recently, but it still sold almost 100,000 cars in China last December alone<\/a>. Selling 8,000 cars per year in India doesn\u2019t mean much for Tesla in and of itself\u2014but it does represent a shift that could yield bigger results later on if the Indian government relaxes those sales limits in the future. And even getting permission to build factories in India is a big win for Tesla, which announced it was ready to commit up to $2 billion towards Indian manufacturing late last year<\/a>.<\/p>\n \u201cWhile this policy can be availed by global companies already present in India, Tesla is widely seen as the company which the Government wants to set up a plant in India,\u201d wrote UBS India autos analyst Pramod Kumar in a comment to Fortune.<\/em><\/p>\n Tesla has been courting India for a while: Elon Musk met with Prime Minister Narendra Modi in New York last June, where they reportedly discussed a potential Indian Tesla factory<\/a>. Musk said he was a \u201cfan\u201d of Modi after the two met<\/a>, adding that he was \u201cincredibly excited about the future of India,\u201d which had \u201cmore promise than any large country in the world.\u201d\u00a0<\/p>\n India\u2019s car market is huge, and largely untapped\u2014not just for Tesla, but also for other foreign automakers. India is the world\u2019s largest third-largest auto market at $151 billion, according to data from its Ministry of Heavy Industries<\/a>. But it\u2019s still in the very early stages of the EV adoption cycle: In 2021, a BCG report<\/a> found that EVs comprised less than 1% of the market, and personal vehicles such as scooters made up almost half of that share. There\u2019s room for massive growth: BCG estimated<\/a> that EVs could comprise up to 35% of all car sales by 2030.<\/p>\n UN data<\/a> showed that India overtook China as the world\u2019s largest country last year, and its 1.4 billion citizens represent a big opportunity for EV manufacturers. Currently, the market is dominated by domestic manufacturer Maruti, which accounted for a full one-third of all Indian car sales <\/a>in 2022.\u00a0<\/p>\n In the short term, analysts expect minimal impacts for domestic manufacturers due to the new tariff rules. Share prices for M&M and Tata Motors<\/a>, two Maruti competitors, fell by 5% and 2% respectively after the tariff announcement, which UBS analyst Kumar called an \u201coverreaction.\u201d<\/p>\n \u201cWe view the new EV policy to not have meaningful impact in the near to medium term on the listed Indian [original equipment manufacturers] due to lower volume limits on imports and higher price hurdle of US$35k per car,\u201d wrote Kumar.\u00a0<\/p>\n<\/div>\n\nSubscribe to the new Fortune CEO Weekly Europe newsletter to get corner office insights on the biggest business stories in Europe. Sign up<\/a> for free.<\/div>\n