Why Tesla Will Find Indian Auto Market A Tough Nut To Crack

Tesla Inc TSLA CEO Elon Musk is preparing the automaker for a “robust entry” into India, as he seemed to confirm on social media last Wednesday. India, a nation of over 1.37 billion is a comparable market to China, where the company has emerged as a leading purveyor of electric vehicles.

Does the Indian market present another golden opportunity for the Palo Alto, California-based automaker?

Laying The Groundwork: Last week, the Chief Minister of Karnataka said on Twitter that Tesla would start operations of an R&D unit in the state’s capital Bengaluru, known as the Silicon Valley of India. The preparations to enter India appear to be in full swing and the buzz is apparent even in Singapore where the automaker posted a job ad last Friday for a “Logistics Analyst” fluent in Hindi, a major language spoken in North India, according to local media. 

Opportunities Abound: India’s EV market could be worth $206 billion in the next ten years leading up to 2030, according to a study undertaken by India’s Centre for Energy Finance, as reported by the Times of India. As per the study, there is a need for investments of over $180 billion in both vehicle production and charging related infrastructure until the next decade. Cumulative vehicle sales are projected to exceed 100 million units by FY30, a rise of 200x the current size of the Indian market. At the end of March 2020, the number of registered EVs in India was just over 500,000. EV numbers are expected to rise to 14.8 million by 2030, as per CEF.

Cars Are Not The Key: Primary problem that Tesla could encounter in India is that, as of now, cars are not the most popular EVs in the country. At the end of FY 2020, there were only 3,400 4-wheeler EVs sold in India, while 150,000 electric two-wheelers were sold, as per CEF data.

This is in contrast to China, where, in June, Tesla sold 2,790 Model 3 vehicles in just Shanghai alone. Hyundai Motor Company HYMTF subsidiary Kia Motors which is looking to launch its first EV this year in the global markets might not enter India right after launch due to weak local infrastructure, Tae-Jin Park, chief sales officer of the automaker in India, revealed to Business Insider. Kia's decision comes despite the fact that it has emerged as a dominant player in the Indian market.

Still, other EV makers have made some headway, including Tata Motors Limited TTM, which managed to sell 2,529 units of its Nexon EV cornering a 63.2% market share in 2020. MG ZS EV and Hyundai Kona EV sold 1,442 and 223 units respectively, according to Carwale, an Indian automotive portal.

Affordability Is The Key: The automaker is expected to enter India with its Model 3 sedan which it is said to have priced at INR 5.5 million ($74,559), as per local media reports. The same vehicle sells for $30,190 in the United States and $38,239 in China. The reason for high prices? Indian duties and taxes. Something even Musk acknowledged in 2019.

I’m told import duties are extremely high (up to 100%), even for electric cars. This would make our cars unaffordable.

— Elon Musk (@elonmusk) August 1, 2019

The Numbers Don’t Add Up: The average per capita annual income in India in 2019-20 was INR 126,968 ($1,735.45), as per provisional estimates made by a Government of India ministry, as reported by Hindustan Times. This translates into a monthly per capita income of about $145 and puts a Tesla vehicle beyond the reach of most of the country. The average Chinese on the other hand earned $1,071 per month in Dec 2019, as per data insights firm CEIC — making China a much easier market to sell in for the U.S. automaker. India’s East Asian neighbor is expected to contribute 40% of Tesla’s sales in 2022 as per Wedbush, but India itself could prove to be a much different and timid story. 

Government Has A Motive: Tesla’s entry into India comes at a very nascent stage, where the EV landscape is all but barren. India’s government has ambitious plans to install one charging station every 25 km on the country’s highways, Moneycontrol reported.

The government also plans to dole out $4.6 billion in incentives to promote the use of EVs and cut its massive oil import bill by $40 billion by 2030. Meanwhile, the government’s tax breaks on batteries are likely to benefit Tesla suppliers Panasonic Corporation PCRFY and Korea’s LG Chem, the Times of India reported separately. 

Lessons From The Past: Once upon a time, cars made by the Ford Motor Company F and General Motors Company GM — particularly the Chevrolet brand ruled Indian roads until the 1950s, reported Auto X. These companies had to retreat from India due to government policies and only re-entered the country post liberalization of its economy in 1991. Ford, which re-entered India in 1995 ended independent operations in the country 24 years later in 2019, after failing to get a foothold in the notoriously difficult Indian market. GM’s second foray was much shorter, as the company entered India in 2009 and stopped selling its Chevrolet branded cars in India in 2017. 

Expect The Unexpected: While Tesla has decided to step into the Indian market, how long it will last there and if it would find success is very difficult to ascertain. The likelihood of replicating the Chinese success story appears to be slim and Musk & Company could be spreading themselves thin by entering this notoriously hard market. However, if Tesla does find success in India, it would take the perfect storm with all the right conditions in place to make it happen, which include government backing, the right pricing, and a rapid escalation in the average Indian’s income.

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