May 22nd, 2021
Tesla, the world’s leading producer of electric vehicles has announced its intentions to enter India. But experts seem to believe that there is more hype than what reality might offer.
By Aks Kuldeep Singh
There’s an electric vehicle revolution sweeping the world and India is also hungry to join the EV race even though the market for EVs in India today is at a very nascent stage.
Elon Musk has indicated on several occasions that Tesla is set to enter India in 2021. On Jan 8th, Tesla took another step towards launching in India by registering Tesla Motors India and Energy Private Limited in Bengaluru, a hub for several global technology companies. Tesla hopes to establish a foothold as India transitions to electric mobility. But experts seem to believe that there is more hype than what reality might offer.
India has been wooing Tesla with an offer of cheaper production costs than China but will that suffice is something that needs to be looked at in greater detail. There are obvious challenges to Tesla’s entry ranging from lack of charging infrastructure to driving lane discipline.
Challenges To Tesla’s Entry
If and when Tesla does eventually come to India it won’t be easy. It’s not going to be like a China market for instance. Companies like Honda, Toyota, Ford or Volkswagen have been in the Indian market for decades but they’re having market shares of 1 to 2%.
India, despite being one of the most populous, is unlike any other country where Tesla has been successful. The Indian market overall is a small car market. It doesn’t compare to the likes of China which has a huge car market. 80% of the cars sold in the Indian market are priced at or under 12,000 USD.
Car ownership is still comparatively much lower when compared to the United States for instance. Only 22 out of every 1000 Indians have a passenger vehicle and the most popular are on the lower end. The Indian vehicle market is dominated by motorcycles and mopeds which make up a majority of vehicle sales. Most people rely on 2 and 3 wheelers for their daily travel needs.
India’s auto industry has been growing. It’s now the 5th largest auto market in the world behind Germany, Japan, the US, and China. And it’s expected to grow 11.3% from 2020 to 2027 but overall car ownership is uncommon. Within the passenger vehicle category, the market is mostly controlled by a few big players.
Maruti Suzuki which is owned by Suzuki is the No. 1 player in India. It controls almost 50% of the market share and it is an expert in making mini- vehicles which are really cheap costing around 10,000 USD. More than half of the cars in the Indian market are of that size in that price range.
India is a very cost-conscious market because it has so many cheaper alternatives available.
The luxury segment is small but it’s expected to grow at about 6% over the next 5 years. There are entrenched players like Mercedes and BMW who are no.1 and no.2 players in the market but the luxury car market accounts for only one percent of the overall passenger vehicle market.
There are not many EVs but that is starting to change. The EV market in India is still at a very nascent stage. It also lacks the infrastructure needed for widespread EV adoption. Existing players like Tata Motors and Toyota have just launched their EVs in the market and other competitors are also beginning to do so.
Can Tesla Succeed in India?
Tesla’s entry into India is highly anticipated but its cars will be out of reach for most consumers.
There is virtually no premium market for EVs in India and very little potential at least in the short term for Tesla to sell in large numbers in India. After all the average middle-class person is not going to buy a Tesla in India.
When Tesla does come to India it will be entering the EV market in its infancy. Charging infrastructure is lacking and most of India’s power grids are still coal-powered and power outages, especially during monsoon season, are very common.
Some of Tesla’s signature features may not be available either. A lot of technologies that Tesla does have like autopilot and autonomous driving may not work in India.
One aspect which will help Tesla is that its brand recognition in India is strong with a small but loyal brand following. But will that translate into sales is hard to say at this point in time.
Some experts think that importing into India may be the best move for Tesla. But import tariffs and tension with China could drive up the cost. Having an assembly plant in India is one way around that and they could actually import knock-down kits so they actually make the most of the cheap labor force.
As the EV market grows, Tesla could then set up manufacturing within India. They could manufacture in India for export to other Asian markets and around the world.
Government incentives and policies were used in China, the US, and Europe to jumpstart the industry in those countries. So, India can’t afford to go electric yet unless the Indian government jumps in and decides to fund this transition.
The government has over the past few years announced some initiatives to incentivize battery producers to set up shop in India and to give incentives to buy EVs. It is also wanting to incentivize the local carmakers to produce more electric vehicles by imposing tariffs on imported ones. From a tax point of view, the EVs are charged only 5% whereas all other passenger vehicles are charged 28% but more needs to be done.
With the high cost associated with EVs today, Tesla’s biggest competition may still be cheaper – petrol & diesel-powered cars. Internal combustion vehicles are still very popular in India because they are comparatively cheaper and so there’d be competition from these local producers as well as the foreign imported cars.
But if Tesla were to build a more affordable EV it could give Tesla the competitive advantage it needs. India wants to embrace EVs but they’ll do it at very low price points like less than $10,000.
Given all the challenges that India does have, it seems highly unlikely that the EV market in India will take off in the foreseeable future.
India’s growth fell off a cliff last year because of the coronavirus pandemic and so the immediate priority right now is to get that growth back on track. Maybe some of that can be incorporated into the electric vehicle space but that remains to be seen.
The views expressed in this article are those of the author alone and not the WorldRef.
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