Will Tesla's entry galvanise India's electric vehicle ecosystem?

Nandana James Mumbai | Updated on January 24, 2021

The Tesla logo   -  REUTERS

The world’s most valuable car company Tesla Inc’s entry into India, with it being spearheaded by Elon Musk, the world’s richest man, is all things symbolic and buzz-worthy — bound to be the much-needed boost to the image of India’s fledgling electric car industry. However, experts also say that with Tesla’s already premium price set to more than double thanks to India’s hefty import duties - and local manufacturing unlikely to materialise right away - it is expected to remain a niche player.

While an entry-level China-built Tesla Model 3 starts at a price of around $40,960, roughly amounting to Rs 30 lakhs, when imported as a completely built unit (CBU) into India, it will attract import duties and levies of around 50-100 per cent. In an extremely price sensitive market like India, at more than double the price, Tesla cars will face difficulties in garnering volumes, said experts. To be sure, the existing share of luxury cars in the overall passenger vehicle market is only around one per cent, despite multiple luxury car companies having had a presence in India for many years.

“A Tesla car is an image builder. Tesla is not going to come to India for volumes. In India, there will be rich people who will buy it, and they will like to flaunt it - it will be an eye-turner. The strategy, perhaps, is not to get volumes, but to get presence,” said Sohinder Gill, director general of electric vehicle makers’ industry body, Society of Manufacturers of Electric Vehicles (SMEV).

However, given the larger-than-life brand image of Tesla, it will play a big role in boosting the confidence of customers in EVs, apart from alleviating doubts and concerns around electric mobility.

Tarun Mehta, co-founder and CEO of Bengaluru-based electric scooter manufacturing start-up Ather Energy says that Tesla’s foray into the Indian market is a tangible sign that the EV industry in India is growing and has strong market potential. “For young players like Ather Energy, this indicates that the overall supply chain will improve and the investments in the EV industry will continue to increase,” said Mehta. “Tesla setting up its R&D unit in India shows that the company really believes in the Indian engineering and manufacturing talent pool. Moreover, this will significantly change the customer's attitude towards electric vehicles and new technology adoption.”

But there is no denying that Tesla will have to set up a manufacturing plant in India in the next couple of years to bring down its prices and ensure its success in the country. “There is no point for any player to come into India, create a market, but not manufacture. Given the tax policies that we have, it actually ensures or drives organisations to start looking at manufacturing in India, because importing the entire car into India is not that profitable. I'm sure that Tesla will take a decision of eventually getting into manufacturing in India as well. And that is the strategy that we have seen a lot of players adopting otherwise as well, especially in the luxury market car,” said Rajeev Singh, partner and automotive sector leader at Deloitte.

Suraj Ghosh, principal analyst - South Asia Powertrain Forecasts, IHS Markit reckons that the market size (of the luxury segment and the luxury EV segment) in India isn’t big enough to prompt Tesla to locally manufacture. "But if Tesla thinks that it can take advantage of India’s cost-effective manufacturing and use it as an export hub, then low domestic demand may not be a bottleneck anymore.”

There could also be an impact on the EV ecosystem if Musk sets up a charging infrastructure for Tesla cars, at least in the top cities which are expected to be Tesla’s primary markets in India.

“With Tesla’s entry, this is the first time when electric mobility will outdo petrol mobility - it will be much faster, much better, and much more smart connected than a petrol or diesel car. At what price is a problem. So, people won't buy it, but then they will envy it, they will like it, they will love it,” Gill explained.

“Tesla, as a brand, is already well-known in India, despite not having a single car on the road. And that speaks really volumes in terms of the brand perception in the country,” said Singh.

But the opportunities for new entrants solely catering to the price range of over Rs 20 would be limited. Moreover, the subsidies under the Centre’s flagship scheme for EVs, Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME-II), won’t be applicable to Tesla. FAME-II is only applicable to PVs priced below Rs 15 lakh, as well as those used for commercial purposes. “Premium EV imports typically meant for personal use are not expected to benefit from FAME-II incentives. The additional 1.5 lakh income tax deduction on the interest paid on electric vehicle loans would only give a marginal benefit,” said Hetal Gandhi, director, Crisil Research.

The EV market in India is also currently led by two-wheelers and three-wheelers primarily, with electric cars only accounting for less than one per cent of India’s overall car sales. This is due to a slew of reasons like the lack of FAME-II subsidy on personal cars, range anxiety owing to the lack of adequate charging infrastructure and high vehicle price vis-a-vis its internal combustion engine vehicle counterparts. Credit rating agencies Crisil Research and ICRA expect the overall EV penetration in the passenger vehicle market to remain at only around five per cent by 2025.

Deloitte’s Singh expects the luxury car market in India to grow at a CAGR of 13-15 per cent over the next 5-7 years, while the mass car market is expected to grow at around eight per cent. “While our average GDP per capita is pretty low, let's not forget that it's always misleading when you (only) look at the average numbers. The number of people right at the top - in terms of the upper middle class and the high-net-worth individuals - is a sizable chunk of people. And that segment is really growing at a good pace.” He also believes that the shift towards EVs will happen at a fast pace, though the current share remains low.

While all is said and done, it may not be wrong to deduce that Tesla’s entry into India may be unlike any other global automaker’s entry.

34-year-old Arun Bhat, the co-founder of Tesla Club India - India’s Tesla fan club - cannot understand why there is a “negative tone” to all the media articles about Tesla’s foray into India. Bhat and the rest of the members of the fan club have been ardently waiting for many years to see Tesla enter India. On January 12, it was the club’s Twitter handle that broke the news to the world about Tesla opening a fully-owned subsidiary in India with its offices in Bengaluru. “We've been following the Ministry of Corporate Affairs website for over six months (for signs of Tesla’s entry),” said Bhat.

Tesla’s manufacturing facility in India will come into being “faster than people realise”, claims Bhat. “Elon Musk has an ambition to manufacture 20 million cars a year by 2030. Now, 20 million cars do not happen at the current price range, it has to come at a lower price range.”

Bhat was also one among the many Indians who booked the Tesla Model 3 back in 2016, when the company opened it for reservations in India, too. Five years on, they still haven’t received the Tesla. Far from deterring him, it has bolstered his conviction in Tesla, said Bhat. “Tesla was a disruptive force in the automobile industry. Tesla cars update themselves throughout their lifetime - and you don't have to pay a penny to Tesla for the updates. It has some really good features that no other car in India and the world would have.”

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Published on January 24, 2021
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