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Tesla entering India and it’s impact on Automakers

Tesla was founded by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric vehicles. Today, Tesla builds not only electric vehicles but also infinitely scalable, clean energy products. Tesla designed the world's first ever premium electric sedan, Model S, which has become the best car in its class.

There have been plenty of speculations about Tesla entering India for several years. Last time, Tesla CEO, Elon Musk didn't enter the Indian markets due to the regulations and infrastructure of India. However, Elon Musk recently revealed his plans for the entry of the electric car maker in India, saying the process to bring Tesla cars to India will begin in January 2021. Union minister Nitin Gadkari said in December that the company will start its operations with sales and then look into manufacturing and assembling depending upon the demand in the country.

India’s market is very different from other global markets and according to reports, India is currently the 4th largest automobile market in the world. But India is not ready for EV infrastructure and plenty of challenges lie ahead for Tesla.

It will take years to establish a wide network of vendors, software infrastructure, R&D, testing and more for its further development. Around 8,000 electric cars have been sold in the last 6 years which shows that the demand is far too little. But it's not like the government has not tried to stimulate demand. The 2019 budget had introduced an income tax exemption of up to 1.5 Lakh rupees on the purchase of electric vehicles.

There are less than 500 electric vehicle charging stations when the current need has been predicted to be around 2,600. Most of the pre-ordered vehicles are around 6-10 Lakhs and the cheapest Tesla car, model S, which is a CBU (complete built up) car is around 28-30 Lakhs outside India and after 100% import duty on such products base price doubles i.e. 60 Lakhs which is simply too expensive.

Due to import duties, Elon Musk has been offered to have Giga-factory at Bangalore or Goa, which will result in cars being manufactured in India avoiding 100% import duty and cars becoming more affordable, i.e. 30 Lakhs. If Giga-factory is set up in India, it will generate employment opportunities for skill oriented workers. However, it is very unlikely for it to be set up here as lithium mines are few and far in between in India but Lithium is the main component of lithium-ion batteries. Due to this, Lithium will be imported resulting in import duties thus increasing prices.

In a price-sensitive country like India, it could be an uphill climb for Tesla to truly establish a firm foothold – not just against the few EVs already here like Mahindra and TATA but against regular cars running on petrol or diesel.

The entry of Tesla will not impact the Indian market for the medium-term, since the market for premium cars costing more than Rs 50 lakh is nascent and minuscule in terms of sale volumes in India. The maximum volume of cars comes from the range of under 20 lakhs.

After battery technology evolves, charging infrastructure is put in place and we start getting electric vehicles costing around 10-15 Lakhs, Tesla can be considered a threat to the automobile industry. Until then, its entry will not impact the auto industry in the near to medium-term. Instead, it will boost the EV segment of India.


Asees and Vaishali


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