Tariff Relief Misses EVs
A recent interim trade agreement between India and the United States has introduced significant tariff reductions for certain American automotive imports,
including high-end cars and Harley-Davidson motorcycles. Specifically, import duties on luxury cars are slated to decrease from a substantial 110% to a more manageable 30%. Similarly, tariffs on Harley-Davidson bikes are set to be eliminated entirely. However, a notable exclusion from this preferential treatment is electric vehicles (EVs). This oversight could represent a considerable impediment for companies like Tesla, which have been actively advocating for lower import duties to facilitate their entry and growth in India, the world's third-largest market for passenger vehicles. This development follows months of trade discussions between the two nations, culminating in an agreement announced by US President Donald Trump. The broader deal also included India halting purchases of Russian crude oil in exchange for India's goods facing reduced tariffs from 50% to 18%.
Tesla's Indian Hurdles
The exclusion of electric vehicles from the India-US trade pact is particularly detrimental to Tesla's aspirations in the Indian automotive landscape. While the agreement outlines a gradual reduction in tariffs for internal combustion engine cars exceeding 3,000 cc over the next decade, reaching 30%, EVs have been left out, potentially blocking a lower-cost route for their importation. This decision directly contradicts the advocacy efforts of Tesla's CEO, Elon Musk, who has consistently voiced concerns about India's high import duties. Interestingly, this contrasts with the concessions India has extended to European automakers under its separate trade agreement with the European Union. Under that pact, tariffs on a wide array of vehicles, including some EVs, could be lowered to as low as 10%, indicating a potentially more favorable approach to EV imports from other regions.
Market Struggles Intensify
Beyond trade policy, Tesla is already encountering significant headwinds in the Indian market. Reports from early 2026 indicated that Tesla has struggled to achieve robust sales, selling less than a third of the vehicles it imported the previous year, with several early customers withdrawing their bookings. To stimulate demand, Tesla has resorted to offering discounts of up to Rs 200,000 (approximately $2,200) on certain variants of its SUV. The company's entry into India in July 2025 has been met with muted reception, coinciding with a global slowdown in EV demand. Globally, Tesla experienced a sales decline for the second consecutive year in 2025, while competitors like China's BYD have surged to become the leading EV seller worldwide. Factors such as reduced subsidies and escalating competition have eroded Tesla's market share in various regions, and India is no exception. Indian consumers remain cautious due to limited brand awareness and the premium pricing of Tesla vehicles. Some potential buyers are reportedly backing out after test drives, opting for more affordable alternatives like BMW's iX1 or BYD's Sealion, which are priced lower than Tesla's Model Y in India and offer comparable features. In 2025, Tesla registered a mere 227 vehicles in India, with many customers who had paid initial deposits now hesitant to finalize their purchases.
