Can Tesla Disrupt India's Auto Industry?

The race to adopt technology or protect the environment, done together if possible, has begun. This brand new desire of human beings brought forth the wonderful manufacturing of Electric Vehicles, aka EVs. Interestingly, India has emerged as the 3rd largest market for the automobile industry with the most demand and supply.

This worked like honey to bees in attracting multiple global EV makers towards India, and that’s how we got to our topic for the article: Tesla. This Texas-based multinational automotive & clean energy company deals in manufacturing, designing, and selling EVs, solar & clean energy-utilising devices.

Now, Elon Musk’s Tesla is planning to enter the Indian market with its flashy electric cars and manufacturing plants. You heard that right! Tesla will establish an EV manufacturing plant worth $2-3 billion (over ₹16,600 crore) on Indian soil.
In this article, we will discuss how this deal came about and its effect on the automotive industry. So, buckle up, reader, because this ride is filled with new discoveries and never seeing turns. 🚗

Tesla’s Visit to India & EV Plant Establishment

Tesla is one of the top 20 companies in the world with the highest valuation. As of April 2024, the market capitalisation of the EV giant is $452.39 billion, which is over ₹37.5 lakh crore.

Tesla used to be among the top 10 companies, but it has seen significant downgrades due to recent losses and diminishing demand. As is clear from the image above, Tesla’s profits went down by over 40% at Q1 of 2024, causing annual sales to slide as well. Not only that, but the company’s stock price has also dropped by 30% since the beginning of 2024.

However, Tesla’s Founder, Musk, is planning to turn the situation around by targeting one of the largest auto markets in the world.

To qualify for lower import duties under Indian government regulations, Tesla is evaluating potential production sites in major auto hubs like Maharashtra, Tamil Nadu, and Gujarat. As Musk hinted, 1-2 Tesla showrooms may open by late 2025 or early 2026.

Seeing as Musk’s trip to India was just postponed due to his other obligations, a delay is to be expected. However, Tesla is not the only thing Musk is planning to bring to India.

Enter Starlink!

Musk’s other company, Starlink, has been trying to enter India for a long time, with the recent attempt in 2022. What happened is Starlink tried to start offering their internet service in India before getting the official GMPCS license. This caused some problems with the government, so Starlink had to cancel its plans.

But now, along with necessary permissions for Tesla, Starlink has also received in-principle approval from the Department of Telecommunications (DoT) for satellite communication services. This is a major step forward, as it still awaits a few regulatory approvals.

Elon Musk’s choice in India is seen as a positive outcome for the nation as this could directly lead to further growth in the EV sector. But, things aren’t like before when it comes to foreign companies entering the Indian waters.

Difficulties in Front of Tesla

Seeing the company's worth, popularity, and sleek EV cars, many people would assume that Tesla’s entry would be a cakewalk. However, things aren’t as simple as one might think. To avoid foreign companies monopolising the Indian market, the government has brought multiple changes in tariffs, FDI (Foreign Direct Investment), import duty, and more.

Earlier, Musk was not planning on establishing a manufacturing plant in India, so he requested the government to give a 70-100% concession on customs duty. But, for all the above reasons, our government swiftly refused the request. However, seeing that Tesla’s entry would mean a further advancement of the EV penetration in India (which stands at 4.5% as of FY2024), the government made some upgrades:

a. Big Discount on Import Duties:

If a company makes Completely Built Units (CBUs), which are fully assembled cars that cost more than $35,000, it will get a massive discount on the import fees it has to pay. Usually, these fees can be as high as 70-100%, but now they'll only be 15%! That's a considerable reduction that will make these EVs much more affordable.

b. Five Years to Take Advantage:

This special import duty rate won't last forever. EV companies will have five years from getting approval to import their cars at this lower rate.

There's a catch, though. To qualify for this discount, EV companies must agree to build factories in India within three years. The Indian government wants more parts for these EVs to be made in India over time. That's why companies must reach 50% "localisation" within five years. This means half of the car parts must be built in India.

What would this mean in the long run? Bringing these stipulations will help create multiple jobs in India and help develop the Indian EV industry. And in this way, Tesla's 6th vehicle plant would be established in India.

But Tesla’s problems don't end here. Here are some more challenges the EV giant is bound to face in India:

1. Charging Infrastructure:

In the world of electric car charging, there are two main plug types:

• CCS2: CCS2 or Combined Charging System 2 is like the regular gas pump used by most electric car companies.
• Tesla Supercharger (NACS): NACS, or North America Charging Standard, is like Tesla's own special gas pump, which is only for their cars.

In the United States, most car companies are now switching to the regular CCS2 type, but the government hasn't officially decided which one is best.

For India, car companies are starting to use CCS2. So, the question is: will Tesla use their own special plug (NACS) in India, or will they switch to CCS2 to match everyone else? What do you think Tesla's choice would be? Comment your answer below. 👇

India's EV charging infrastructure is still in its early stages. Setting up a widespread network of Supercharger stations, like Tesla has in other countries, will be crucial for customer adoption. This could cause the company to incur additional expenses and deter potential buyers who may hesitate to purchase an electric vehicle with limited charging points.

2. Meeting The Policies Deadline:

Tesla is a new entrant in the Indian market. Initially, they were permitted to import a limited number of cars, which was around 8,000 per year for the next three years. This is a trial phase for Tesla to assess the demand for their cars in India. Additionally, it is crucial for them to meet this three-year deadline to comply with the new EV policy regulations.

If Tesla is unable to meet this stipulation, any future opportunities could be null and void in India.

3. Rising Competition:

Established carmakers like Tata Motors and Mahindra & Mahindra are already making strides in the Indian EV market. Tesla will face competition not just on price but also on brand recognition and service networks. This particular point is further discussed in the article ahead. Click here to reach the dedicated portion. 👈

4. Vehicle Modifications:

Tesla's existing car models might have a lower ground clearance compared to what's needed for Indian roads with frequent speed breakers and potholes. They might need to modify their vehicles for the Indian market.

5. Price Default:

India’s market is big, but the consumers here prefer an affordable price set when it comes to buying items. Tesla cars, especially the Models 3 and Y, cost around $40,000 in the US and over ₹33 lakh in India. If Tesla wishes to be successful in India, it will have to compete with the ongoing market price, which starts at over ₹10-15 lakh.

It would be difficult for Tesla to price its cars near the norm in India. This would make competing with the present market dominators in India even more difficult.

Tesla’s Biggest Competitors

As of 2023, EVs have a 6.3% market share in the overall automotive market. With the establishment of a plant, Tesla would start manufacturing EVs in India. With this, the current EV sector & and the whole automotive industry would be highly impacted.

If you look at the current Indian market, Tata Motors is dominating the EV sector with a whopping 72% market share. EV models like Tiago, Nexon and Tigor from Tata Motors and MG ZS & Mahindra XUV400 are the most sold cars in the nation.

Hence, Tata Motors is more likely to be Tesla's biggest competitor when it enters the market. What’s even more interesting is that Tesla recently signed a deal with another Tata company (Tata Electronics) for semiconductor chips for cars.

Both the companies have reportedly agreed for this deal allowing Tesla another step in the Indian market. But, seeing the many challenges we discussed ahead, Tesla would be difficult to get a smooth start.

The Bottom Line

A recent government report (Economic Survey of India 2023) predicts a fantastic growth rate of nearly 50% every year until 2030. This means by 2030, we could see a whopping 10 million electric vehicles sold annually in India!

Astonishingly keeping pace with this, the auto parts industry is gearing up for a big investment of over ₹25,000 crore. This money will go towards making more electric vehicle parts in India, especially batteries – which are currently quite expensive and mostly imported.

This would also generate around 50 million direct and indirect employment opportunities for citizens in the next 5-7 years. By making these parts ourselves, Indian companies can become major players in the electric vehicle revolution and create new opportunities!

Overall, Tesla's entry into India is expected to significantly boost the country's EV sector. It will introduce new technology, create jobs, and potentially encourage other manufacturers to join the electric mobility movement.