India plans to cut tariffs on cars imported from the European Union to 40% from as high as 110%, Reuters reported on Monday, citing two sources familiar with the matter.
The country is the world’s third largest automotive market, only behind the US and China.
Prime Minister Narendra Modi’s government has agreed to immediately reduce the tax on a limited number of vehicles from the 27-nation bloc with an import price exceeding 15,000 euros ($17,739), the sources told Reuters.
The rate will be further lowered to 10% over time, easing market access for European automakers.
Some of the Tesla Model Y rivals in the market include the Mercedes-Benz EQB, Volvo EC40, and the BMW iX1.
India and the EU are expected to announce on Tuesday the conclusion of protracted negotiations for a free trade agreement, after which the two sides will finalize details, according to Reuters.
India’s Protected Market
India is the world’s third-largest car market by sales, after the US and China, but its domestic auto industry has been among the most protected.
New Delhi currently levies tariffs of 70% and 110% on imported cars, a level often criticized by executives including Tesla‘s chief Elon Musk.
Until recently, India imposed a 110% import duty on all fully built vehicles.
The government revised this policy last year, lowering the duty to 15% for automakers committing to invest and establish local manufacturing facilities within three years.
Tesla in India
The Elon Musk-led company is facing a lower than expected demand for its Model Y in India.
Tesla offers the Model Y in India — the world’s best-selling car across all powertrains in 2024 and 2025 — in rear-wheel drive and long-range variants.
The RWD has a range of up to 500 kilometers on a single charge, while the long-range variant reaches 622 kilometers.
Bloomberg reported earlier this month that Tesla was offering discounts of up to 200,000 rupees ($2,200) on unsold Model Y inventory in India.
The company imported about 300 vehicles to the country, but roughly 100 remain unsold after early reservation holders canceled their orders, according to the report published on January 15.
The lower tariffs could allow Tesla to price its GigaBerlin-made Model Y significantly lower in the market.
EU-China Tariffs
Separately, the EU imposed tariffs on Chinese fully electric vehicles in late 2024 following an investigation that found Chinese subsidies gave them an unfair advantage over other manufacturers.
On top of the baseline duty of 10% on imports, BYD faces an additional 17%, Geely Automobile Holdings 18.8%, and SAIC Motor — which owns MG — 35.3%. Other cooperating brands, such as Nio and XPeng, are subject to a 20.7% extra tariff.
The two blocs resumed trade talks last year amid rising global tensions following US tariff announcements.
Earlier this month, the EU issued guidance on “price undertaking” offers to replace the high tariffs on Chinese EV imports.
While Beijing and Chinese EV makers welcomed the move, Brussels cautioned that issuing the guidance does not mean the EU will lift tariffs.
EU trade spokesman Olof Gill clarified last week that “there is no ongoing investigation into exports of hybrid vehicles from China to the European Union,” following media reports that the European Commission was considering extending tariffs to include hybrid models.
