It was sometime in early 2022 when Elon Musk, CEO of Tesla, had tweeted about India’s high import duty levels for cars and why this was impacting his company’s entry into this market.
In no time, representatives from West Bengal, Telangana, Tamil Nadu, Maharashtra, Punjab and Karnataka tweeted right back that they were ready to lay down the red carpet for Tesla.
It was then that a senior auto industry executive told this writer, “I just don’t understand why India is so obsessed with Elon Musk. His coming to India is not going to make a difference except for a few hundred people who will buy a Tesla. If he wants to come to India, he has to come on our terms and not on his (terms).”
This executive’s view was clearly a minority voice since the country remains smitten by both Elon Musk and Tesla. However, this is understandable at one level since he is the poster boy of electric vehicles and even if his company is now facing competitive pressure from Chinese brands like BYD, there is something about Musk that translates into massive charisma.
The undeniable truth is that he has been the biggest disruptor in the EV space and Tesla has been a huge factor in forcing the automobile industry to have a rethink on its clean fuels strategy. The electric carmaker also got an indirect boost from the Volkswagen diesel scam of 2015 which had Europe in a tizzy and prompted policymakers to start looking at options like electric.
Fast forward to 2024 and Musk is in the news again. Tesla reported a disappointing Q1 and the top priority now is to optimise capacity at its plants first before making any fresh investments. Whether this means that Musk’s plans for India have been shelved is not entirely clear since no official statement has been issued to this effect.
Wooing Musk
It was on March 15, 2024, that India announced its new electric vehicle policy and the overall consensus was that everything was now in place for the Tesla entry. For companies which would invest USD500 million for their EV projects, they would be allowed to annually import 8,000 cars, costing at least USD35,000, for five years at 15% duty.
There was a tremendous sense of excitement all around with most of the attention focused on Tesla even though the likes of Tata Motors, Mahindra & Mahindra, MG Motor India and Hyundai had already thrown their hats into the EV ring. Tata Motors is the market leader by miles and its Nexon has become a familiar brand in this space.
Musk was slated to visit India and announce mega investments for Tesla with speculation rife that Gujarat would be the preferred location for his project. He changed his mind at the last minute citing ‘heavy Tesla obligations’. The Q1 results and the tough decisions that followed in terms of plant priorities and a thinner workforce means that the Tesla founder has his work cut out in the coming months.
Even while there is no word yet on the India project, it is still a million dollar question if the new EV policy will make it more viable for Tesla. Importing cars for a limited period at lower duty levels could be a salivating prospect for buyers here but in terms of business viability, the bigger task on hand is to have the kind of numbers that justify the investment. It is only with greater volumes that localisation efforts follow and a momentum is finally in place.
Affordable remains relative
Tesla has been speaking of an affordable car whose price is expected to be in the range of USD25,000. But customer response will still be modest in a country where this kind of a price tag remains prohibitive to large sections of the market. Further, Tesla would ideally like to export cars made in India but then there are not too many free trade agreements in place except with a handful of European countries. The UK is expected to follow by the end of this fiscal.
“India is still protectionist in many ways and needs more FTAs for investors like Tesla to even contemplate making investments,” says an auto industry executive. Beyond this, it is estimated that the share of electric in the total passenger car market will be 15%-20% by 2030. Assuming that India’s total production of automobiles will be six million units annually by the end of this decade, EVs will account for around a million for a little over 75,000 units each month.
“The GST on EVs is 5% right now but once volumes start increasing, will the Centre still be inclined to forego the revenue accruing as a result?” asks the executive. There is no telling what could happen in the future but there is no way that EVs will bask in the luxury of reduced GST forever. Even for electric two-wheelers, the FAME 2 subsidy has been withdrawn because it was amply clear that this was not sustainable for the Centre.
Across many parts of the world, there is now this growing realisation that electric need not be the sole solution to cleaner vehicular emissions. One of the key reasons for this change in thought is the growing emergence of China as an EV powerhouse. Its home-grown brands are firing on all cylinders and the country is now keen to spread them globally.
Tariff barriers
This has caused sufficient consternation in the EU with large sections of its industry seeking tariffs on cars imported from China. The US, likewise, has made it clear that it will not allow free flow of Chinese car imports with threats of even a 100% import levy on those shipped in from Mexico. The world’s largest producer of automobiles and EVs actually has few friends in powerful places.
Back home, there is little love lost between India and China with tensions still simmering for the past three years. Consequently, investments from new Chinese entrants like Great Wall Motors have been rejected. BYD has been present for some years now and even if it has emerged the most serious rival to Tesla globally, its wings are clipped in India from the viewpoint of investing more.
Elon Musk has no reasons to be worried about competition from Chinese car brands in India since their country’s politicians have shot themselves in the foot with their needless hectoring policies vis-a-vis India. It remains to be seen when he will finally choose to make an announcement on his plans but he can be rest assured that the doors will always be kept open in this part of the world.
