Forbes India 15th Anniversary Special

Tesla needs India and India needs Tesla. Now it's all about making it work

After months of gridlock, hopes of Tesla's entry into India have been rekindled with its senior officials flying to Delhi to discuss with the government the company's plans to set up operations in the country. The American automaker's presence here is likely to drive the transformation of the automotive industry toward sustainable and electric mobility

Manu Balachandran
Published: Jun 15, 2023 11:24:30 AM IST
Updated: Jun 15, 2023 12:06:18 PM IST

Tesla needs India and India needs Tesla. Now it's all about making it workCEO of Tesla Motors Elon Musk speaks at the Tesla Giga Texas manufacturing "Cyber Rodeo" grand opening party on April 7, 2022 in Austin, Texas. - Tesla welcomed throngs of electric car lovers to Texas on April 7 for a huge party inaugurating a "gigafactory" the size of 100 professional soccer fields. Image: Suzanne Cordeiro / AFP
It’s been many months of dilly-dallying.

At first, about a year ago, the Indian government stood steadfast on its demand that if Tesla needed to sell cars in India, it had to set up a local manufacturing facility in the country, home to the third-largest automobile market in the world. Soon after, Elon Musk, the billionaire CEO of Tesla, announced that Tesla will not set up a manufacturing plant in any location where the company was not allowed first to sell and service cars.

The gridlock meant that Tesla’s India plan had been shelved even as India was pitching itself as a global manufacturing hub, and more so as an alternative to China.
Now, a year since Musk went public, hopes of Tesla’s entry into India have been rekindled after senior officials at Tesla flew down to New Delhi to meet with the government to reportedly work out plans for setting up operations in India. “They are very seriously looking at India as a production and innovation base," Rajeev Chandrasekhar, information and technology minister, told Reuters in May.
“We have signalled to them that the government of India is working together (and) will certainly make whatever ambitions they have or investment objective they have in (making their) India (plans) a success," Chandrasekhar added. A few days after that high-profile visit, Musk announced on Twitter that he’ll likely pick a new Tesla factory location by the end of the year—and confirmed that India is an ‘absolutely’ interesting option.
Musk currently needs to set up a manufacturing facility. Whether that’s in India or South Korea or elsewhere is insignificant, considering how the American automaker quickly wants to take advantage of its position as a cost leader in the global electrification journey even as it struggles with supply constraints. Then there is the growing competition from incumbents such as Mercedes, BMW and Volkswagen who have been accelerating their electric journey, and in the process drawing away potential buyers from Tesla, which had for long been seen as the archetype of electric vehicles (EV) globally.
“From what I understand, unlike before, the team from Tesla who came to meet officials are those who have the potential to influence a decision on setting up a manufacturing facility,” says Arun Malhotra, former managing director and CEO of Nissan India and an industry veteran. “That speaks volumes about Tesla’s intention. For the Indian government, this is an opportunity to showcase their manufacturing might, and in the process, it will lead to a potential influx of more companies flocking to India.”
Tesla currently has six manufacturing facilities across the globe, with four in the US. It also has two Gigafactories—a facility that can manufacture cars and batteries—in Shanghai and Berlin. In March, the company confirmed that it has identified Mexico to set up another Gigafactory where it intends to produce a next-generation vehicle. The company plans to sell 20 million EVs a year in 2030 from about 1.3 million currently, which would mean a significant ramp-up in assembly plants and battery production.

Also read: EVs are all the rage. Will the charging infrastructure catch up in 2023?

Low-cost Proposition

“If Tesla invests in India, it can change the rules of the game in the premium market,” says Puneet Gupta, director for automotive forecasting at market research firm S&P Global Mobility. “Battery is the big component in an electric car, and if Tesla can find a way to localise in India, and with the low-cost structure in the electric vehicle market, it can give a perfect product proposition. There certainly is a potential for a Rs25 lakh to Rs30 lakh car in the electric vehicle market.”
Musk himself has been advocating a sub-$30,000 (Rs24.5 lakh) electric vehicle since 2008, but even the cheapest of Teslas costs as much as $42,000 (Rs34.5 lakh) in the US. In India, import duties on completely built units are currently around 100 percent. That means a Tesla can’t be available for less than $80,000 (Rs65 lakh), making it unaffordable for millions of Indians, unless the company can find a way to bring the vehicle as a completely knocked down unit (CKU) which attracts 15 percent duties. But that would also mean setting up an assembly unit in India. Local production, however, offers incentives and makes manufacturing cheaper.
With supply chain constraints beginning to eat into Tesla’s timelines—Musk has said that the production of its Class 8 EV semi-truck would be dialled down due to supply chain issues—it also helps that India, with its low-cost operating structures, offers an alternative in ramping up production in addition to an economy that’s now expected to be the fastest growing large economy.

Tesla needs India and India needs Tesla. Now it's all about making it workTesla currently has six manufacturing facilities across the globe, with four in the US. It also has two Gigafactories—a facility that can manufacture cars and batteries—in Shanghai and Berlin Image: Patrick Pleul/picture alliance via Getty Images
“India offers lower labour and manufacturing costs compared to some other countries,” says Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute. “This could potentially reduce production costs for Tesla and make their vehicles more competitive in terms of pricing. Establishing a manufacturing facility in India would also help overcome supply chain challenges such as long lead times and logistics issues.”
On June 14, Musk said that limitations in battery supply meant that the automaker will wait until 2024 to increase production of its electric trucks, which were first delivered in December 2022. "So, we're tentatively aiming for 50,000 units in 2024 for Tesla Semi in North America. And obviously, we'll expand beyond North America," Musk said on June 13 in Austin.
The supply constraints for its trucks also come at a time when the company has cut prices for some of its Model Y and Model 3 vehicles in the US for the sixth time, in its attempt to take the fight to other automakers who have also been chasing electrification.
“In the current macroeconomic environment, we see this year as a unique opportunity for Tesla,” Tesla said in its quarterly earnings. “As many carmakers are working through challenges with the unit economics of their EV programmes, we aim to leverage our position as a cost leader. We are focussed on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.”
Globally, automakers ranging from GM to BMW and Ford are expected to spend over $500 billion in developing all-electric vehicles from gasoline models over the next several years. GM had in 2021 said that the company would switch to an all-electric fleet by 2035 while Ford had announced plans to go all-electric in Europe by 2030. In India too, automakers from Tata to Mahindra have taken the plunge to develop their models as the government looks to have 30 percent of all vehicles sold in the country to be electric by 2030. Currently, Tata Motors sells over 6,500 units of electric vehicles every month in the country.
By 2030, about 40 to 45 percent of all two-wheelers and 15 to 20 percent of all four-wheelers (passenger vehicles) sold in India will be electric, according to a report by Bain & Co, while the government wants EV penetration to hit 40 percent for buses, 30 percent for private cars, 70 percent for commercial vehicles, and 80 percent for two-wheelers.
Still, affordability remains a key constraint when it comes to mass adoption in a market that’s well-known for being price sensitive. Currently, electric vehicles from Kia, Mercedes, BMW and Hyundai, among others, position themselves at a higher price point, making them less accessible to a broader consumer base. At the same time, homegrown manufacturers, Tata and Mahindra, along with Chinese automaker MG have found success with Tata alone selling over 6,500 EVs a month, signalling a significant opportunity for electric vehicles.
“If Tesla succeeds in producing and offering more affordable models, it could potentially address the affordability concerns in the Indian market,” adds Sharma of Nomura.

Also read: Electric Vehicles: From transition to transformation in 3 steps

Challenges Remain

For the government, getting a company of Tesla’s reputation to set up a base in India means a massive opportunity to announce its entry into the global league of manufacturing. “Tesla is often discussed in the same league as Apple,” says Malhotra. “Apple has begun manufacturing in India and the ripple effects of that on the ecosystem are huge. The same can happen with Tesla. However, the government has to create a level-playing field for global luxury carmakers in India. They cannot grant Tesla benefits which other manufacturers are not eligible for.”
The government, in its attempt to push manufacturing, has been offering a production-linked initiative for the automotive sector and is even considering an increase in the outlay—in an attempt to woo Tesla. The current outlay for the advanced chemistry cell batteries is Rs18,100 crore and that for automobiles and auto components is Rs25,938 crore. The government has also announced a scheme worth Rs1,000 crore to set up charging infrastructure in the country.
“Ultimately, Tesla's success in the Indian market will depend on various factors, including its ability to offer competitively priced models, establish a robust charging infrastructure, address localisation requirements, and effectively compete with other luxury brands,” says Sharma. “It's also important to note that market dynamics and consumer preferences can change over time, and affordability might become an even more critical factor as the electric vehicle market continues to evolve in India.”
India’s automobile market is highly taxed and according to Gupta of S&P, in the case of a Toyota Fortuner, for instance, up to 48 percent of the price is various taxes, following which a customer also has to pay taxes to the state government before the vehicle hits the road. “The taxes for selling a vehicle in India are very high. A small car below 1200 cc will attract a GST of 18 percent and 1 percent cess whereas those with greater than 1500 cc have a GST of 28 percent and 20 percent cess,” says Sumit Das, senior automotive analyst at GlobalData.
Additionally, India currently levies a 100 percent import tax on completely built units (CBU), above $40,000, and a 70 percent import tax on those below $40,000. At the same time, the government also levies a 15 percent import tax on products bought in Complete knocked down (CKD) form. “But, in the case of adoption of EVs, incentives will play a very important role,” Das says.
Then there is the potential that India’s recent discoveries in lithium-ion reserves offers in ramping up the critical element central to electric vehicle manufacturing. Globally, a sudden surge in pursuing electric vehicles has meant that battery prices haven’t seen a gradual decline as was expected; in 2022, prices for lithium-ion batteries rose by 7 percent, according to Bloomberg NEF. Automotive lithium-ion (Li-ion) battery demand increased by about 65 percent to 550 GWh in 2022, from about 330 GWh in 2021, according to the International Energy Agency. That, despite a 180 percent growth in lithium production compared to 2017.
“In 2022, about 60 percent of lithium, 30 percent of cobalt, and 10 percent of nickel demand was for EV batteries,” IEA said in a global EV outlook for 2023. “Just five years earlier, in 2017, these shares were around 15 percent, 10 percent, and 2 percent, respectively. As has already been seen for lithium, mining and processing of these critical minerals will need to increase rapidly to support the energy transition, not only for EVs but more broadly to keep up with the pace of demand for clean energy technologies.”
Meanwhile, a potential Tesla entry into the local market will also pit the automaker against incumbents ranging from Tata to Mahindra in addition to the global automakers. Tata already has a head start with its vehicles that corner more than 80 percent of the domestic EV market and has lined up numerous models in the country. Then, there are newcomers such as Ola Electric which began manufacturing two-wheelers only last year.
Ola Electric is looking to rewrite India’s electric vehicle playbook by launching an electric vehicle that has a range of over 500 km and even zooms from 0-100 in less than four seconds. “Global automakers think that the Indian market is not ready for world-class technology and hence sell their hand-me-down tech in India,” Agarwal had said while announcing the car. “Now we need to change this. We deserve a car that defines this new India, an India that is fearless and believes in writing its own destiny."
The company plans to launch its first car priced at less than $50,000. “While Tesla's entry is expected to have a significant impact, it's important to note that the Indian automotive market is vast and diverse,” says Sharma of Nomura. “Factors such as pricing, localisation efforts, government policies, and consumer preferences will also influence the extent of Tesla's influence in the sector. Nonetheless, Tesla's entry is likely to be a catalyst for change and drive the transformation of the automotive industry in India toward sustainable and electric mobility.”

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