Can Tesla's EVs win over India's price-conscious buyers?

Tesla, the well-known American electric vehicle manufacturer, is making moves to enter the Indian market, which has sparked a lot of interest and discussion. The company has started hiring for various positions in Delhi and Mumbai, two of India's largest cities. Additionally, Tesla is reportedly searching for locations to establish showrooms where potential customers can view and purchase their electric vehicles. India, being the third-largest economy in Asia, presents a unique opportunity for Tesla, especially as the company faces declining sales in other parts of the world and increasing competition from Chinese electric vehicle manufacturers. However, a significant question looms over Tesla's potential success in India: can the company effectively compete in a market where consumers are highly sensitive to prices? Currently, Tata Motors dominates the Indian electric vehicle market, holding over 60% of the market share. Following Tata Motors are MG Motors, which is a collaboration between India's JSW and a Chinese company, with a 22% market share, and Mahindra and Mahindra, which also has a presence in the electric vehicle sector. The prices of electric vehicles produced by these companies are significantly lower than Tesla's offerings, with the base model of a Tesla costing around $40,000. This price point positions Tesla's vehicles as luxury items, competing with higher-end electric vehicles from brands like Hyundai, BMW, and Mercedes. To gain a foothold in the Indian market, Tesla may need to consider introducing a more affordable model specifically designed for Indian consumers. In addition to pricing challenges, Tesla may also face difficulties related to India's road conditions. Tesla vehicles are designed with low ground clearance, which could make them less suitable for the often uneven and poorly maintained roads found in many parts of India. To adapt their existing models for the Indian market, Tesla may need to make significant engineering changes, which could increase manufacturing costs. This raises the question of whether Tesla would be willing to invest in such modifications for a market where their presence may be limited. Hormazd Sorabjee, the editor of Autocar India magazine, pointed out that even established global car manufacturers have struggled to succeed in India, particularly at the high end of the market, where sales volumes are relatively small. He emphasized that justifying major engineering changes for a limited market can be quite challenging. Despite the excitement surrounding electric vehicles, it is important to note that they currently account for less than 3% of total passenger vehicle sales in India. Furthermore, the necessary infrastructure, such as charging stations, has taken years to develop. Although the number of charging stations is increasing, there are still only about 25,000 charging stations across the entire country. As a result, Tesla will be competing in a relatively small, albeit growing, electric vehicle market. On a positive note, the Indian government is actively working to attract Tesla to the country. The government has laid out an ambitious plan to transition to electric vehicles, aiming for 30% of private cars, 70% of commercial vehicles, 40% of buses, and 80% of two and three-wheelers to be electric by 2030. Many state governments have also implemented their own electric vehicle policies to encourage both demand and supply. According to HSBC Securities, India offers some of the highest subsidies for electric vehicles among major economies, with subsidies reaching as high as 46% of the price of the country's best-selling electric car model. This has led to a remarkable increase in electric vehicle sales, which have surged by over 2,000% in less than five years, rising from a mere 4,700 units sold annually to 100,000 units. Jyoti Gulia, the founder of JMK Research, noted that the price gap between traditional vehicles and electric vehicles has narrowed significantly, prompting consumers to reconsider their choices. In April of the previous year, India also reduced import taxes on electric vehicles for global manufacturers that commit to investing $500 million and starting local production within three years. Tesla and other imported electric vehicles priced over $35,000 can now benefit from a lower import duty of 15% on up to 8,000 vehicles. This change came after Elon Musk expressed concerns that high import duties were hindering the company's ability to launch its vehicles in India, which is one of the fastest-growing major economies in the world. Some experts believe that this strategy is clever, as it encourages global players to localize their production in India. However, there are concerns that this policy could disadvantage domestic car manufacturers, as the investment requirements for foreign companies are relatively low compared to those for Indian companies in the same sector. The 15% import duty is also significantly lower than the taxes imposed on comparable combustion engine vehicles in India, which also face additional road taxes. Over the past five years, electric vehicle sales in India have skyrocketed from 4,700 units to 100,000 units annually. Rajesh Jejurikar, the Executive Director and CEO of Mahindra and Mahindra, expressed that they welcome competition from Tesla, believing that more players in the market will strengthen India's electric vehicle ecosystem. The company is actively working to enhance the appeal of its offerings. Key issues such as 'range anxiety,' which refers to the fear that an electric vehicle's battery charge will not be sufficient for a journey, have been addressed through robust battery integration and extensive real-world testing across diverse road conditions. Jejurikar added that Mahindra is incorporating cutting-edge technology into their products. However, it will be challenging to compete with Tesla's advantages in this area, especially considering Tesla's superior battery technology and user interface. Another factor that may work in Tesla's favor is the increasing demand for premium vehicles in the Indian automotive market. As a global brand with a strong reputation, owning a Tesla could become a status symbol for the young and aspirational population in India. Nevertheless, despite the Indian government's supportive electric vehicle policies and the growing interest in premium cars among affluent consumers, Tesla has yet to commit to investing in a manufacturing facility in India. For the time being, it appears that the company will continue to import vehicles from its factories abroad. The timeline for when Tesla might establish local manufacturing operations depends on various factors, including the expansion of India's affluent consumer base and the outcome of trade negotiations with the United States. There are concerns that the US government may not favor Tesla building a factory in India to avoid high tariffs. This situation raises questions about whether the 'America First' policy could impact Elon Musk's willingness to invest in manufacturing facilities in India. Ultimately, it seems that India will first see Tesla showrooms catering to wealthy customers rather than factories that could create jobs for the country's under-employed population.