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Tesla seems to have slammed the brakes on its plans to launch its electric cars in India due to local regulations.
When a curious fan asked Tesla CEO Elon Musk on Twitter on Monday when the company would launch its cars in India, Musk responded, “Maybe I’m misinformed, but I was told that 30 per cent parts must be locally sourced and the supply doesn’t exist in India to support that.”
Tesla follows a direct selling model in the US, bypassing dealers and distribution in order to save costs. It sells most of its cars through an online retail model. In India a foreign company that wants to set up retail operations is required to source at least 30 per cent of parts locally. Smartphone maker Apple, which too sells through its own retail outlets, had sought a relaxation of this rule.
No foreign car maker owns retail stores in India, which means they don’t have to comply with the ‘FDI in retail’ norm. Yet, except for super luxury car makers such as Aston Martin, Lamborghini and Rolls-Royce, most car companies have significantly high levels of localisation in India.
‘Not a big deal’In fact, in many luxury cars, most parts other than the engine and the transmission are made in India.
“Doing 30 per cent localisation is not a big deal, and most of the companies that Tesla competes with such as Audi, BMW and Mercedes-Benz do anywhere between 40 and 70 per cent localisation in India,” said Abdul Majeed, Partner at PwC.
“If a company is serious about India, it will ‘localise’ to avoid 110 per cent import duty on fully-built cars. Even if they get all parts imported and assemble them in India, they can achieve about 10 per cent localisation,” Majeed said.
Tesla started taking bookings for its upcoming variant Model 3, priced at $35,000, in April last year. The car is expected to begin production later this year. Several Indians, including Paytm CEO Vijay Shekhar Sharma, had booked the car by paying $1,000 in advance.
Prospective buyers will have to shell out double the price if they are forced to import the car instead of buying it locally.
Prime Minister Narendra Modi, whose government has put set an ambitious target of an all-electric fleet in India by 2030, met Musk in the US in September 2015. A month later, Musk tweeted: “Given the high local demand, a Gigafactory in India would probably make sense in the long term.”
Instead, Musk has been in discussions to launch a Gigafactory in China, which is a much bigger market than India for electric vehicles.
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