The world’s most talked about EV company will soon enter the Indian market.
With the buzz around EVs hitting stratospheric highs, it’s no surprise Tesla would want a slice of the Indian market.
According to a report by consultancy RBSA Advisors, the EV market in India is estimated to grow at a CAGR of 90% from 2021 to 2030.
In terms of value, it will likely reach $150 billion by 2030.
So when is Tesla coming to India?
Tesla’s plans to enter India have been shelved since 2019.
In January 2020, the company had registered a subsidiary in Bengaluru called Tesla India Motors and Energy Private Limited.
This was done with the aim of capturing a portion of the automotive market in India, the fourth largest in the world.
People who were aware of the developments initially said the company would set up a research and development center in Bengaluru.
However, officials later confirmed that the company was looking for locations to start selling its vehicles.
The company has now received approval for seven of its vehicle variants from the Ministry of Road Transport and Roads.
While not much is known about the exact launch date of any of these variants, some models are expected to launch later this year.
However, there has been a delay.
Musk wants tariffs to be lowered without the obligation to produce locally, while the Indian government would prefer it to produce the cars in the country.
Currently, imported cars are subject to 60-100% customs duty in India.
This means that the Model 3, Tesla’s most affordable model, could cost nearly double what it does in the US.
The global price tag of the car is Rs 30 lakh ($39,990). In India, it can cost anywhere from Rs 48-60 lakh with import duties.
Union minister Nitin Gadkari said the model could be lower than Rs 35 lakh if the company chose to set up a local production unit.
He has offered Tesla benefits under the PLI (Production Incentive Scheme). To take advantage of incentives, car companies (domestic or international) are required to make investments of Rs 2,000 crore over a five-year period.
Maruti Suzuki, Hero MotoCorp and Bajaj Auto have already filed applications under the same.
The government has also revised the GST (goods and services tax) to 5% for electric vehicles (EV) compared to the 29-50% range for ICE (internal combustion engine) vehicles.
Tesla is also free to use this incentive.
Are Indian car companies threatened by Tesla’s entry?
Tesla’s request for tariff cuts has alarmed other automakers.
In September 2021, Shailesh Chandra, chairman of Tata Motor’s passenger car unit, said the tariff cuts violate the government’s FAME program, which encourages local production and affordability.
He said –
Boosting localization remains key to driving greater adoption of electric vehicles and making them affordable.
Thus, efforts should be made to make the products and components in India against subsidized imports.
Mahindra & Mahindra (M&M) also argued that a reduction in import duties would be unfair if the government’s priority is with Make in India.
Tata Motors accounts for 90% of the passenger EV market in India, while Mahindra & Mahindra (M&M) dominates the commercial EV space in the country.
However, Tesla is the largest profitable EV company in the world. It is therefore not surprising that both companies prefer to avoid the competition.
However, could Tesla really pose a threat?
Not really.
There is no doubt that the company is at the forefront of the EV revolution. In fact, when you think of electric vehicles, you think of Tesla.
Tesla sales have also steadily increased year over year. As you can see in the chart below, the company’s deliveries have increased by more than 10x from 2016 to 2021.
In addition, the company is profitable.
However, the company’s global market share has fallen from around 18% to 14% in the past year as other global players have entered the EV space.
Also in the US, the company’s market share has fallen to 56% in 2021 from 79% in 2020.
The company is slowly losing market share to industry titans like Volkswagen, Ford and General Motors as a slew of new EV models hit the market.
Globally, stiff competition in Asia appears to be an obstacle.
The car market in Asia is extremely competitive. A wide variety of EV models with different features are available at a fraction of the cost compared to the US and Europe.
In fact, China’s best-selling EV, the Wuling Hongguang Mini EV, starts at a base price of Rs 3.4 lakh ($4,500), which is about one-tenth the cost of the cheapest Tesla model.
Should the same competitive landscape emerge in India, Tesla is unlikely to eat the market share of Tata Motors or Mahindra & Mahindra (M&M).
Tata Motors’ cheapest EV model, Tata Tigor EV, starts at around Rs 11.5 lakhs, while the duty-free Model 3 starts at Rs 30 lakh ($39,990).
This makes it a luxury car that not many people can afford. It also does not fall into the same segments that most Indian auto companies operate in.
Where Tesla does pose a threat is the luxury market. Among the luxury brands, the company’s position appears to be strengthening as demand for EVs grows.
Tesla beat Mercedes-Benz for the number three spot in new luxury car registrations in the US in September 2021.
In India, it could give tough competition to Mercedes Benz, BMW, Jaguar Land Rover and Audi.
What now?
Demand for luxury EVs in India will only increase over time and competition is expected to be fierce.
Mercedes-Benz has announced plans to introduce its EV, EQS sedan later in the year, while Audi has launched a study to check the feasibility of assembling EVs locally.
Swedish car manufacturer Volvo also wants to compete.
BMW, meanwhile, is pushing for a tax cut on fully-built imported vehicles, just like Tesla, but for a limited period of time as it’s also considering localization.
If Tesla wants to conquer the premium car market in India, it would have to raise the bar.
One of the things it could do is follow in the footsteps of tech giant Apple.
In 2017, Apple requested that the government relax the 30% local purchasing requirement for foreign direct investment in single-brand stores.
The then Indian government had rejected the company’s proposal.
Months later, Apple set up its local manufacturing facility in India under the “Make in India” program. It was able to lower prices by taking advantage of domestic production.
After this, the company saw an increase in sales. In 2020, the company registered a 68% jump in iPhone sales.
As a result, its market share is now one third of the premium smartphone market in India.
Tesla could benefit greatly if it did the same.
The EV market is growing rapidly in India and is expected to take a significant share in the near future.
The new ecosystem that will emerge will certainly disrupt the existing vehicle market. In addition, companies that are part of this revolution will gain a lot.
How Tesla makes the most of its EV capabilities in India remains to be seen. In the meantime, stay tuned for more updates from this space.
All the hype around EV stocks isn’t for nothing. EVs are slowly replacing vehicles with an internal combustion engine (ICE).
The transition to 100% EVs offers plenty of opportunities for EV makers.
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
(This article is from Equitymaster.com)
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)