How can Tesla’s entry into India affect the Automobile Industry in the country?

Earlier this week it was confirmed by Transport Minister of India, Nitin Gadkari, that US clean energy and electric vehicle company Tesla will “start operations” in India in early 2021. He was optimistic about India becoming the global hub of the automobile industry within five years.

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So how does Tesla’s entry into India help the automobile industry of the country? And how sure are we that Tesla will be a success in India?

Government initiatives

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Image: The Economic Times

One of the most tangible signs of Tesla’s imminent successful expansion to India is the government’s favorable EV regulations and policy initiatives rolled out in recent times. 

The Indian government recently unveiled significant income tax rebates for consumers who buy Electric Vehicles, providing a monetary nudge towards EV adoption. The government slashed the GST rate on electric vehicles from 12% to 5%, and in another landmark move, Faster Adoption and Manufacturing of Electric Vehicles in India Phase II, or FAME India Phase II, was approved by the government. FAME India Phase II has received an allocation of Rs.100 billion ($1.4 billion) for a period of three years, including a proposal of setting up 2,700 charging stations across the country by 2022.

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A NITI Aayog report provides a 15-year roadmap for electrification of vehicles in the country which could save India a staggering $60 billion in energy costs and one gigaton of carbon emissions by 2030. 

These policy moves suggest the government is “supportive and anxious to bring Tesla to India,” said, Dan Ives, managing director at Wedbush Securities, according to CNBC.

Manufacturing has been noted to be a huge priority for national and state EV policies and both the private and government players want to support  India’s auto manufacturing market as the world shifts to EVs.

“Both national and state governments are eager to attract international EV auto companies,” said Anjali Jaiswal, senior director of the international program, India Team, at Natural Resources Defense Council (NRDC). “In the latest round of policies and in light of the Covid-19 economic downturn, state and national governments are working hard on favorable policies for international EV companies, such as Tesla, while protecting local jobs and sourcing requirements remain a major focus,” she added.

The Government will give their blessings but will the people?

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Image: Youtube

MNCs in India are provided with two choices — dance to the tune of Indian habits or go back. Be it McAloo Tikki and Chicken burgers at the world-famous McDonald’s or the full-crusted pizzas at local joints. Recall any ad for tyres, extra grip is the one common promise you’ll see in those commercials — India’s roads are pot-holed, congested, and unruly that promise to surprise you every mile of the way. Tesla will have to go through some serious ‘Indianisation’ to prove its worth to the Indian citizens on our rough roads. The EV manufacturer will have to turn its cars into rugged monsters to survive here or meet the fate of earlier international hits like Uno by Fiat, a globally successful car that flopped in India since it was too low-floored for our bumpy roads.

Tokyo-based Atsushi Kawahashi, senior director, automotive, at J.D. Power, said balancing optimism about Tesla’s India prospects while tempering expectations is key. “While Tesla is likely to have a huge appeal among Indian car buyers, it will be up against formidable challenges,” he said. “The Indian car market is extremely price and value-conscious, with about 70% of the sales below Rs. 1 million (about $14,000).” 

Given Tesla’s current product range, it is likely to enter the premium segment — Model 3 sells for around $40,000 in China — to be successful in India the prices will have to be cut down to at least in the $25,000 range.

How could this be a win-win for the Indian market as well as Tesla?

India’s potential as a lucrative market for Electric vehicles is undeniable and the country represents a big opportunity for Tesla, just how big is difficult to determine.

“India will be as big as China, and maybe even bigger as there are no trade or geopolitical conflicts impacting the background,” said Craig Irwin, an analyst at Roth Capital.

Ives said Musk has had a few false starts in the past but contends India is and will remain a high priority for Tesla and its CEO in the coming years. “The demand picture has changed and now with Giga 3 build-out in China, Berlin, and Austin, India is next,” he said, pointing to EV demand and the population growth in India as indicative of a massive market.

In five years India will represent 10% of the overall demand for Tesla, according to Ives’ projections.

What Vivek Wadhwa, a distinguished fellow at Harvard Law School’s Labor and Worklife Program, pointed out also considerably increases India’s relative attractiveness. The uncertainty posed by the ongoing U.S.-China trade spat and China’s questionable intellectual property regime.

“I am sure Elon [Musk] is worried about the tensions between the U.S. and Chinese government,” Wadhwa said. “Tesla could be kicked out at a moment’s notice. The Chinese government would not hesitate to do this once it has stolen whatever technology it needs from Tesla.”

India on the other side has bilateral agreements with many of the countries that Tesla plans on expanding next, and, therefore, could become a production hub. “They [Tesla] are in a strong position as right now in the EV market it’s Tesla’s world and everyone else is paying rent,” Ives said.

But with a large production base in the neighborhood in China, does Tesla plan on manufacturing in India? Or importing from China? A great deal of Tesla’s India story could be driven by its decision here. 

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Tesla Factory in China. Image: Clean Technica

Wadhwa said Musk could choose to import, but it would be a mistake. “I don’t think he understands geopolitics,” he said. “A better strategy would be to import the required components and build an assembly plant in India.”

That’s because it would get Musk tremendous support from the Indian government, and also help transform the Indian automobile industry from within and with closer detail. “Otherwise, he may end up getting frustrated by the bureaucracy,” Wadhwa said.

Moreover, the recent military standoff between India and China and India’s continuous policies against Chinese products does not make the import option viable.

According to a Bloomberg report, India sold only a little more than 8,000 units in 6 years, China sells more than that in two days. However, the Indian automobile industry is going to undergo a huge turnover for the good if everything falls into place for Tesla in the country. With fuel prices soaring high, Indian consumers will now be on the lookout for other options, and there’s no better option than Electric Vehicles, which will also help the environment of our populated country.

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