New Delhi: China made an exception to its local manufacturing norms, a sufficient-enough incentive to spur Elon Musk’s Tesla Inc. to decide on building its first automobile factory outside of the US in Shanghai.

The Wall Street Journal on Sunday reported that the electric carmaker had reached an agreement to set up its own manufacturing facility in Shanghai. The deal with Shanghai’s government will allow the Silicon Valley-based automaker to build a wholly owned factory in the city’s free-trade zone, the newspaper reported.

A Tesla spokesman didn’t have a comment beyond reiterating the company’s previous statement in June that it planned to “clearly define" production plans in China by the year’s end, the report said. The Shanghai government didn’t reply to a request for comment, it said.

So far, Chinese manufacturing laws have required foreign automakers to set up joint ventures with local partners, which involves splitting profits and sharing some technology, though they also avoid import tariffs.

India, widely seen as a potential rival to China’s economic dominance, is still formulating policies which will help the country achieve its objective of having an all-electric fleet of vehicles on the roads by 2030.

A Tesla factory in China may also mean that Musk may have overlooked Indian overtures to make the country a manufacturing hub for exports to south- and south-east Asian countries. Mint reported on 24 March that transport minister Nitin Gadkari offered land near ports to Tesla so that the company could set up a manufacturing unit in the country and also make it an export base. Tesla has not responded to these overtures officially.

Prime Minister Narendra Modi visited Tesla’s factory in Fremont, California, in 2015.

To be sure, China’s electric-vehicle (EV) market is already the world’s largest and is expected to continue growing, especially since the government plans to require that all automakers’ sales include a certain percentage of EVs from 2019. It, therefore, offers a much better ecosystem for Tesla, when it looks to expand its global footprint.

Electric car sales in China increased at a compound annual growth rate of 179.4% between 2013 and 2016 to 329,000 units, equivalent to 1.4% of total sales of fossil-fuel run cars, according to Bank of America Merrill Lynch.

On the other hand, in India the concept of EVs is still at a nascent stage.

In 2016, India saw 450 electric cars, less than a 1% of the entire market, hitting the roads, according to the International Energy Agency.

According to a Bloomberg New Energy Finance report, India currently has about 350 charging points while China (having the largest EV market in the world) had about 215,000 installed at the end of 2016.

Gadkari said unambiguously in September that auto firms have to switch production to vehicles that run on non-polluting alternative fuels “whether they like it or not". The minister’s remarks ended efforts by the domestic auto industry to lobby for hybrid technologies instead of EVs, and forced them to fall in line.

“Automobile industry whole-heartedly welcomes the prospects of electro-mobility... No matter who says what, electro-mobility is not coming day after tomorrow. It will take years but it does not mean we have so many years of time. We need to start moving in that direction rapidly...," Abhay Firodia, chairman of Pune-based Force Motors Ltd and president of Society of Indian Automobile Manufacturers, said.

Under the goods and service tax regime rolled out on 1 July, EVs attract a much lower 12% tax compared with 28% on hybrid, petrol and diesel vehicles. The government is also considering benefits including zero import duties on electric vehicles as well as lower electricity costs.

In January, the government announced that it would bear up to 60% of the research and development cost for developing indigenous, low-cost electric technology. A corpus of Rs14,000 crore has been set aside under the National Electric Mobility Mission Plan.

Tenders for charging stations, electric three-wheelers and battery-powered buses, will also be floated within a year.

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