Tesla faces bumpier ride in India after success in China
Last week Elon Musk all but confirmed Tesla will enter India, sparking jubilation among fans, some of whom have had its electric cars on order for years. But it may prove the company’s hardest market to crack yet.
On January 13, Musk tweeted “as promised” in response to a report on a Teslafocused blog that the firm was in talks with Indian states to open an office, showrooms, a research and development centre — and possibly a factory.
“It’s really happening,” said Nikhil Chaudhary, a 20-yearold student at the University of Delhi who helped start India’s Tesla fan club in early 2019, adding he “went crazy” when he heard the news. Arun Bhat, 34, a company director in Bengaluru, said at last there’s hope that he’ll get the Tesla Model 3 he ordered in 2016.
For all the hype, Tesla’s foray into India is far from a done deal. Tesla is in discussions with state officials but is yet to decide on an Indian base, according to the Tesmanian blog post that triggered Musk’s response.
A Tesla representative in Beijing declined to comment.
India hasn’t rolled out the welcome mat for electric vehicles (EVS), unlike China, where Tesla set up its first factory outside of the US and now dominates electric-car sales.
EVS account for about 5 per cent of China’s annual car sales, according to Bloombergnef, compared to less than 1 per cent in India. According to the International Energy Agency, around 60 per cent of the world’s public slow- and fastcharging spots are in China.
India has been making moves but they’re not on the same scale. In 2015, it launched a Faster Adoption and Manufacturing of Hybrid and EV (FAME) plan, with a ~900 crore commitment to subsidies that cover everything from electric tricycles to buses, according to the IEA. A second generation of the FAME programme introduced in 2019 was larger, with ~10,000 crore to encourage EV purchases and build out charging infra.
India also cut the goods and services tax on EVS to 5 per cent from 12 per cent, effective August 2019, much lower than the levies of as much as 28 per cent slapped on other motor vehicles, which have attracted criticism from companies like Toyota Motor.
But contrast that to China, where utility State Grid Corp. of China committed to spending 2.7 billion yuan ($416 million) on charging stations in 2020 alone. State-owned China Southern Power Grid Co. said it planned to invest 25.1 billion yuan on charging infra over four years. Those outlays come after several years of heavily subsidising consumer EV purchases to kick start the market.
Cost will also be a major stumbling block. India’s FAME programmes won’t do much to help lower the price for wouldbe Tesla customers, since the upper limit for an EV to qualify for subsidies is ~15 lakh. Teslas will cost more than that and, therefore, won’t be eligible, according to BNEF analyst Allen Tom Abraham.
An entry-level China-built Tesla Model 3 starts at 265,740 yuan, or around $40,960. With export expenses on top of that, the sticker on a Tesla retailed in India would put it beyond the reach of most drivers.
About 75 per cent of all Indian auto sales occur in the $10,000 and under bracket, about half the average price in China and just 25 per cent of the average in the US. That means even Tesla’s most affordable car will likely appeal to only about 1 per cent of the market, Abraham said. “The volumes they can expect in a market like India will be really, really small,” he said.
Still, the Indian EV market is growing and could be worth almost $206 billion in the coming decade, according to a study by the CEEW Centre for Energy Finance, which noted an investment of more than $180 billion would be required by 2030 to achieve that.
And in a country as large as India, a product with a small market share could turn out to be worthwhile for Tesla, especially given the company’s strong brand awareness among affluent and environmentally conscious Indians.
According to Rajeev Singh, a partner and automotive leader at Deloitte India, Tesla is already a well-known name — “there’s a pull from the brand perspective” — and India’s luxury car segment is also poised to grow by around 15 per cent over five to seven years, about double that of the total market, Deloitte forecasts.
While it’s unclear how seriously Musk is thinking about the prospect of one day making cars in India, the government is reportedly trying to lure big manufacturers, and Tesla would be the ultimate catch — like it was for China.
The government is planning to offer about ~1.7 trillion in incentives to attract global firms to set up manufacturing.
India has had some success, with about 24 firms including Samsung, Foxconn, and Wistron pledging to establish mobile-phone factories.
Teslas, however, are likely to be imported, at least initially.
Even an enthusiast like Bhat, who currently drives a Hyundai Kona EV, is realistic about the challenges.
“Until there’s a local plant, it will be a niche product,” he said.