Why have Elon Musk's Tesla aspirations in India struck a snag?
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Why have Elon Musk's Tesla aspirations in India struck a snag?

When the electric vehicle maker established a local business earlier this year, the prospects of India hosting a Tesla plant appeared bright. The Tesla move raised expectations that India, like the United States, China, and Europe, could one day have been able to join the ranks of global EV production centres. These hopes, however, are quickly dissipating.

Tesla's ambitions for growth in India have met a snag because Elon Musk, the company's billionaire CEO, is pushing for reduced tariffs on electric vehicle imports to test the market before establishing a plant in Asia's third-largest economy.

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Harsh Patidar views regarding Tesla’s Entry

“Tough rules and a lack of infrastructure are two additional potential barriers for Tesla,” says Harsh Patidar, an automotive analyst at market research and consultancy firm CapitalVia Global Research. “The government must invest heavily in this sector.” “I believe Tesla's entry will be a game-changer for the EV sector and will usher in an entirely new era in the automobile business,” Mr Patidar adds.

The electric vehicle market in India is still in its infancy, but it is viewing as a sector with huge development potential. As part of its commitment to the Paris climate change accord, Prime Minister Narendra Modi's administration has set a target of 30% of private automobiles and 70% of commercial vehicles being electrified by 2030 to decrease pollution and lower the country's carbon footprint.

 

What did Devendra Agrawal, founder and CEO of Dexter Capital Advisors say?

“Developing the EV industry is incredibly important for a country like India since India is one of the most polluted countries in the world. Broad EV adoption may yield huge currency savings for the government,” says Devendra Agrawal, founder and CEO of Dexter Capital Advisors.

“Even if tariffs have cut, its pricing would be an issue in the Indian market,” Mr Agrawal adds. “Tesla's products would be appealing to just the top 1% of consumers due to their pricing, and as a result, their [sales] volumes in India are likely to be quite low.”

When it comes to entering the Indian market, Tesla has a lot to think about, and one of the most critical issues, aside from its higher price point, is whether it should work with a local partner.

What did he further say about Tesla?

“Tesla is a pioneer in the EV space, and its speed of innovation and execution is far ahead of any Indian automaker. However, it may not require any partner for technology and manufacturing... given the complexities of the Indian market, laws, and a difficult-to-crack distribution, it can develop a good option for Tesla to partner with an Indian player,” Mr Agrawal says.

There have been rumours that a collaboration between Indian giant Tata Sons and Tesla is in the works. However, Tata chairman N Chandrasekaran told The Times of India in March that "there is no conversation with Tesla."

Musk statement regarding further plans?

Mr Musk has long mentioned India as a nation where Tesla would like to develop a footprint. He has focused on the problems that India poses while speaking about the market's immense potential.

In response to an EV fan's Twitter plea last month to bring Tesla to India, Mr Musk stated that the firm wishes "to do so," but that "import taxes [in India] are by far the highest in the world of any big nation!" Furthermore, clean energy cars are the same as diesel or gasoline vehicles, which does not appear to be wholly consistent with India's climate aims.

However, before India sees a growth in the number of electric vehicles on its roads and car manufacturers such as Tesla enter the market, it must invest in charging infrastructure and address the issue of tariffs that push up the price of EVs.

Tesla did not reply to The National's requests for comment on its intentions for India through email or Twitter. According to Bloomberg, Tesla has previously written to India's transport and industries ministries, requesting them to reduce the import tariff on electric vehicles to 40% from the previous levy rates of 60% to 100%. The automaker is hardly the only one pushing for duty reductions.

What did Mitu Shah, head of research at Reliance Securities talk about the analysis on the EV adoption after establishing the plant of Tesla in India?

The stakes are enormous for automakers in India. Tesla is unlikely to abandon its plans to establish a base in a nation with a population of more than 1.3 billion people. “India, being one of the big automobile markets, continues to be one of the favourite destinations for all of the global auto giants,” says Mitul Shah, head of research at Reliance Securities.

“The Indian government is also pleased to have such a global company establish a manufacturing base in the nation, which would benefit both parties in the future.” Analysts think that if Tesla establishes a plant in India, it will provide a remarkable boost to the EV sector. India's electric car sector is now trailing behind that of China, where Tesla opened its first plant outside of the United States in 2019.

Tanushree Banerjee, co-head of research at Equitymaster, adds, “The Indian government has been putting regulations in place that prioritise the move toward electric mobility.” These include a production-linked incentive programme to encourage domestic production of electric car batteries — the most expensive component that is presently mostly imported.

Other reactions and official statement

“Compared to normal car costs, EVs are 50 to 80 per cent more expensive, making it more difficult for mainstream customers to adopt,” Mr Shah adds. “Over time, we anticipate Tesla to thrive in India,” Mr Shah adds. “The Indian consumer is price sensitive, and affordability [as a factor in the nation] is lower as a result of the country's comparatively low per capita income.” “A lot more work needs to be done in terms of product performance, technology, localization and cost-effective production to make it a mass-market vehicle,” he says.

“The shortage of competent individuals in [the] electric vehicle market is a key barrier for both international and local EV producers trying to establish capacities,” Ms Banerjee adds. It may have a rough path, but considering the potential for development, the benefits have been substantial if the sector picks up speed.

Krishan Pal Gurjar’s Statement

In a blow to automakers, junior minister Krishan Pal Gurjar informed parliament last month that "no such plan is under discussion." He did, however, state that the government was trying to expand its network of charging stations. However, on Monday, Reuters reported that India is considering lowering import duties on electric vehicles, citing two unidentified senior government officials.

Conclusion

Analysts believe that it will be a little too pricey for India's mass-market with Tesla models beginning at $40,000. Experts argue that there have been difficulties to overcome whether Tesla begins production in India alone or with a partner.

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