New Delhi mulls decreasing EV import tariffs to woo Tesla

Reform would allow Tesla to tap into India’s nascent but high potential EV market

India is considering lowering tariffs on imported vehicles, aiming to persuade Tesla to invest in a local manufacturing plant. The government is contemplating a new tariff rate of 15 percent for all vehicles, sharply down from the current rate of 70 percent for vehicles valued at under US$40,000 and 100 percent for vehicles over US$40,000. Tesla made tariff reduction a precondition for setting up a factory in the country. Tesla is considering an initial investment of US$2 billion to establish a production hub serving both local and international markets.

India’s EV market is dominated by local player Tata Motors, which has a 70 percent share. Also present are entrenched Japanese automakers such as Suzuki which plans to export Indian-made EVs to Japan as early as 2025 and later to Europe. Suzuki believes the cost of manufacturing in India will allow it to compete with cheap Chinese-made EVs which in 2022 accounted for around 60 percent of global EV sales.

India’s EV industry has massive growth potential. Although just one percent of vehicles sold in India are EVs, uptake among its middle class of around 400 million people is growing rapidly. In the first half of 2023, EV sales increased sixfold year-on-year to 15,000. The central government has set a target to raise EV sales to 30 percent of all new car sales by 2030.  For Tesla, its negotiations with India broadly mirror those that it has been undertaking with Indonesia, which has refused to jettison its 50 percent EV import tariff rate. The lure of the Indian auto market, now the world’s third largest, may prove too much for Tesla to pass up.

Washington sanctions Russian LNG supply for the first time

The Biden administration will be careful to avoid significant increase in global prices

The US has begun sanctioning exports from new Russian LNG projects, aiming to prevent Russia from re-directing stranded former EU pipeline gas flows. Early this month, Washington announced sanctions on exports from the Arctic LNG 2 project, located on the Gydan Peninsula in northern Russia. The sanctions affect France’s TotalEnergies and Japan Arctic LNG – which each hold 10 percent stakes and equivalent offtakes in the project – which would need to sell their holdings by January. Chinese state-owned companies CNOOC and CNPC also hold 10 percent stakes. The long arm of Washington’s sanctions generally forces any company with large exposure to the US to comply. The companies would have each received 1.98mn tonnes of LNG annually at the project’s full capacity. Arctic LNG 2 is expected to begin exporting LNG in Q1 2024. US officials have made clear that its new sanctions make a distinction between new Russian gas projects and those in which Western companies already have stakes such as Sakhalin-II (Mitsui, Mitsubishi and Shell) and Yamal LNG (TotalEnergies).

The sanctions will add further difficulties to Russia’s ambitions to supply 20 percent of the global LNG market by 2035. Europe, the destination for many gas pipelines out of Russia, has begun to cut its reliance on Russian gas following the invasion of Ukraine. Russia’s pipeline gas exports to the EU are projected to fall almost two thirds from 2022 to 2023. Attempts by Russia to promote a new pipeline to China – the Power of Siberia 2 – has run into difficulties due to China’s preference to increase supply from Qatar.

As with the price cap on Russian oil, the US will be attempting to thread the needle between curbing Russian LNG ambitions and preventing an increase in global market prices. Gas specialist Anne-Sophie Corbeau projects that the sanctions “will keep the markets a bit tighter for longer”. EU countries are under intense pressure to reduce consumer energy prices amid their decreased intake of Russian gas. The importance of Russian LNG in Japan and Europe’s energy security could prompt TotalEnergies and Japan Arctic LNG to seek exemptions from the sanctions.