Tesla’s India entry: Much ado about nothing?

But this is something that the majority of automakers in India have been opposing the reason, it questions the logic of their commitments and investments towards localisation.

Avik Chattopadhyay, Founder of Expereal, a brand consultancy firm says, “Some sections of the industry are already becoming vocal about the need for an even playing field for a game that is CAPEX intensive needing very deep pockets. Also, initiatives like Atmanirbhar Bharat and PLI will look silly if special deals are worked out for a select few. Any such move will be both deflating as well as detrimental for the domestic automakers who are serious about electric mobility and have planned their investments accordingly.”

“What is interesting to note is that the ministry in focus with respect to Tesla has shifted from Ministry of Heavy Industry and Union Minister Nitin Gadkari to the Ministry of Commerce and Union Minister Piyush Goyal. Guess the initial parlays with Nitin Gadkari did not bear much fruit as he might have taken a more stern stand on tax sops and incentives. The visit of Piyush Goyal and the absence of Elon Musk does send out disturbing signals on who is in the driver’s seat,” he explains.

Make in India

It is expected that while Tesla may want to play hard chip, the government of India may be in no mood to give any sops unless it gets a concrete investment commitment.

As per media reports, there is a possibility that the government could be working on a policy to attract newer players, especially in the EV space to invest in India.

Ravi Bhatia, President & Director, JATO Dynamics sees the potential entry of Tesla in India could be positive for the industry.

He tells Financial Express, “The introduction of Tesla cars in India is likely to intensify competition among carmakers, prompting them to enhance electric vehicle offerings and invest in technology. This could boost consumer awareness and acceptance of electric vehicles, driving innovation and potentially influencing pricing dynamics. Tesla’s entry may also spur infrastructure development and encourage local manufacturing, prompting other carmakers to adapt to the evolving market landscape.”

He further believes that “given Tesla’s success in China, it could be practical for the company to invest in capacity in India, tapping into the growing market and potentially benefiting from local manufacturing advantages and address export markets.”

On the other hand, Chattopadhyay is of the opinion that “Tesla will have to learn from the domestic automakers on how to tailor-make its vehicles for Indian usage and applications. It will be a terrific opportunity for the likes of Tata and Mahindra to prove a point or two, to the world at large and the government, in specific. Finally, the customer will benefit the most from all this as She/he will get better products on offer. And the halo around Tesla might be put in its right place. Remember Coke versus Thums Up and Apple versus Android? The brand with a better value proposition and emotional connect will finally win.”

Vinnie Mehta, Director General, ACMA says “The Indian auto component industry today is globally competitive and world-class. We heartily welcome auto manufacturing investments in India, deeper the localisation, the better for us.”

In a recent media interaction, Mahindra Group, MD, Anish Shah also expressed that the company had seen “tremendous competition in India over last 20 years. We are confident in our ability to compete with anyone in the EV space”. He was responding to his views about Tesla’s entry into the country.

Market potential and competition

Looking at the pricing of Tesla cars in the United States it is evident that the entry-level Tesla Model 3 comes to around $40,000 (Rs 33 lakh), which in India would mean an additional 100% import duty (in its current form).

Even if the company were to bring down the cost by localisation, it would still play in the premium segment. A closer look at the sales of the electric vehicle luxury segment shows around 2,068 units were sold across brands in the first 10 months of 2023. This is hardly a fraction of the total passenger vehicle sales.

India being the world’s third-largest passenger vehicle market is being seen by global carmakers absent here to hold the potential for driving their next phase of growth. For Tesla, which has been reeling under pressure sees India as a lucrative market to strengthen its foothold in the global automotive market.

Chattopadhyay says, “Tesla is being forced to get into a lower price point (sub $20,000 proposed model) by the likes of BYD, Geely and VinFast. These brands are rewriting the rulebooks right now. Also, some European brands like Citroen have disrupted the market. And Toyota is slowly but steadily getting their game right. So, Tesla has no option but to look lower to ensure sustained growth. In India, the total market for four-wheelers in the above Rs 20 lakh price point is just a tip of the market pyramid. Even if the EV market above that price point becomes 200,000 units per annum by 2030, it will not lead to any disruption in the market. That will happen only if automakers offer EVs below Rs 7 lakh. And that will take quite some doing.”

Another industry stakeholder questioned the need to roll out special sops for the EV maker stating that giving any special concession could send wrong signals to the auto industry, and would Indian automakers receive such a special privilege if they entered other markets?

Market size

Despite being crowned as the world’s third-largest passenger vehicle market, the demand dynamics is quite different than one would expect. In fact, if one looks at the macro factors such as the per capita income in India of $2,388.6 (Rs 198,595) vs $76,398.6 (Rs 63,53,377) in the United States or the number of centi-millionaires (individuals with assets of more than $100 million or around Rs 830 crore) of India ranking third right behind China and USA.

There exists a stark contrast.

Coming to the luxury car market an area where Tesla would be seen and played. According to Statista data, the country-wise luxury car market revenue was led by the United States ($7.4 billion), followed by Germany ($3.2 billion), Russia ($1.08 billion), United Kingdom ($948 million) and Malaysia ($182 million).

On the other hand for India, the entire luxury car retail sales had achieved its peak of a mere 41,000 units in 2018. This year, it is expected to touch a new high of upto 45,000 units.

Furthermore, a deeper dive into the sales of electric vehicles in the premium segment (Rs 25 lakh+) finds a total of just 2,068 units sold between January and October 2023. Bhatia believes that the share of electric vehicles in the luxury segment is in the range of around 15-18%, while mass production makes around 6-8% in the next five years.

This means that the entry of Tesla in India would serve just as mere optics or slightly expand the luxury market. The real impact on jobs and the crucially expanding EV market will still be some years away.