India asks Tesla to buy half a billion US dollars of Indian-made parts or consider cutting import duties.

If Tesla wants India to consider lowering car import taxes, the company needs to commit to purchasing at least $500m of car parts from India, according to foreign media reports.

While this starting point may be low, Tesla needs to agree to increase the number of parts purchased in India by about 10 to 15 per cent a year until satisfactory levels are reached, according to people familiar with the matter. The government led by Indian Prime Minister Narendra Modi has formally asked Tesla to step up procurement efforts in India, but has not yet conveyed procurement targets to the company. In August, Tesla said it had purchased about $100m worth of parts from India.

The Indian government has said it would very much like Tesla to produce cars in India, but the country also seems to want to take advantage of Tesla's interest in the Indian market in an attempt to benefit the country's burgeoning electric car industry. Tesla said it wanted to test the waters by selling imported cars in India, and to achieve that goal, India needed to reduce import taxes on electric cars by as much as 100 per cent. India remains a market that focuses on the value of cars and is dominated by cheap gasoline cars, with electric cars accounting for only 1 per cent of the country's total car sales, and clean transport is still an emerging industry for India.

In order to press ahead with the tax cut, Tesla must submit to the government a parts purchase plan proportional to his car sales forecasts in India, the person familiar with the matter said. If Tesla plans to import cars from China to India, it must also export Indian-made parts to China.

Tesla and a representative of India's Ministry of Road and Transport did not immediately respond to a request for comment.

Last July, Tesla CEO Elon Musk said on Twitter that India's import tax is the highest in the world and treats clean energy vehicles and gas-guzzling vehicles equally, which is not in line with the country's goal of carbon neutrality. Last year, India asked Tesla to avoid selling cars made in China's Shanghai factory in India, according to Nitin Gadkari, India's road transport minister.

In early February, India rejected Tesla's request to lower import duties on electric vehicles, saying it had provided lower tariffs on imported cars that had been partially assembled, which would need to be assembled locally. Import duties on electric cars in India can be as high as 100 per cent, while imported cars that are partially assembled are subject to import duties of 15 to 30 per cent.

The impasse in Tesla's negotiations with the Indian federal government comes as other Indian states are courting Tesla and promising to simplify the approval process. At least five states are working hard to attract Tesla to build a factory.