The moment has arrived. Tesla, the US-based carmaker, has registered itself in India. The development has created a massive buzz; Tesla is, after all, the world’s most valuable automotive company at present. But how will its entry impact the country’s EV industry? Especially one that is at a nascent stage but is growing at a rapid pace as well?
The short-term impact of Tesla’s India expansion
Prima facie, not much will change, at least in the short-to-medium term. The EV ecosystem in India is still at a nascent stage. The EV charging infrastructure remains underdeveloped and is mainly restricted to tier-1 cities. The supply chain for essential EV components, such as batteries, is also heavily dependent on imports, driving up the end-consumer costs of EV purchase and limiting the mass adoption of hybrid and electric vehicles in a price-sensitive market. As a result, by the end of FY2019-20, the total number of registered EVs in India stood at barely five lakh units. The COVID-19 outbreak also impacted EV adoption in the country, with barely 5,000 electric vehicles purchased during 2020.
Tesla’s entry will not change that dynamic, for the company plans to import CBUs (completely built units) during the initial phase. Given India’s high import levies, this move will only serve to increase the pricing of the already costly Tesla EVs by up to 100%. That said, the move could galvanise the larger EV ecosystem over time. The company is planning to set up an R&D center in India to tap into the strong pool of local engineering talent. Eventually, Tesla will also set up a manufacturing unit in India to bolster its indigenous production capabilities and market capabilities, as well as to strengthen its global supply chain.
We can expect these developments to provide a major fillip to indigenous EV manufacturing by mobilizing direct competitors and potential ecosystem partners to provide more innovative offerings.
Taking the long view: How Tesla’s entry can kick-start the next level of EV innovation in India
With the ex-showroom price of an entry-level EV in India upwards of INR 10 lakh, the country’s market for four-wheel EVs largely revolves around the sustainability-conscious sensibilities of upper-middle-class and affluent consumers in metropolitan and tier-1 cities. The entry of Tesla’s premium EVs will drastically increase the competition for automobile manufacturers catering to this niche, and its pull as a successful global EV brand will force them to consider diversifying into the mass market segment.
But how does it lead to innovation? The simple answer to that question is the economics involved in EV manufacturing.
To make four-wheel EVs more accessible and affordable for mass consumers, auto manufacturers will have to slash EV prices by at least 50-75%. Doing so without exacerbating concerns about range and utility will only be possible if they can bring down the battery costs, which currently account for almost half of the total cost of EV manufacturing.
This critical need-gap will drive incumbent auto manufacturers such as MG Motor India, Hyundai, and Tata Motors to join hands with both local battery tech start-ups such as RACEnergy and ION Energy, as well as established global players such as Denso, Exide, and Okaya. Investments aimed at augmenting cutting-edge Li-ion battery technology and indigenous manufacturing capabilities will increase sharply as a direct result of this development.
Similar investments will also be made to develop the pan-India EV charging infrastructure. Leading carmakers, such as MG Motor India and Tata Motors, have already tied-up with players in the clean energy space to provide their customers with multiple options to charge their electric vehicles, whether at home or through a stationary/mobile EV charging station. We can expect these investments to accelerate at a rapid pace, with automobile manufacturers seeking to consolidate their consumer base before Tesla launches its first electric vehicle.
Tesla defined a new era for the global automobile industry by transforming old-school automobile practices through a Silicon Valley-inspired start-up mindset. Its entry has the potential to provide a much-needed impetus for India’s EV industry. It should not, however, be seen as a magic fix; the benefits it brings will only begin to manifest in the long run.
Srinivas Chitturi, co-founder, MTAP Technologies