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Will Musk Be Able To Steer Tesla In The Indian Market?

Will Musk Be Able To Steer Tesla In The Indian Market?

Elon Musk has confirmed that Tesla will enter the Indian market by 2021, it is in talks with Maharashtra and Karnataka govt as well

Tesla will be one of the most expensive EVs in the Indian market, falling in Mercedes Benz EQC price tag bracket

About 8000 electric cars have been sold in India in the last six years, so is it the right market for Tesla?

“Next year for sure. Thanks for waiting,” Elon Musk, CEO of Tesla and founder of SpaceX,  recently tweeted, confirming the entry of electric vehicle (EV) giant Tesla by 2021 in India. Given the hype and popularity of Tesla in the international market,  policymakers as well as automotive enthusiasts in India, are eagerly waiting to see a Tesla running on the Indian roads.

Tesla which clocked annual worldwide sales of 1 Mn vehicles till October 2020 is currently the undisputed market leader in the EV segment across the world. Tesla plans to reach 20 Mn vehicles by 2030. At the time of releasing Tesla’s third-quarter earnings, Musk said, “I’m not saying for sure we’ll hit 20 Mn vehicles. But it does seem like a good goal to have because that would mean that we’re replacing 1% of the global fleet per year.”

But is it possible for Tesla to achieve these numbers without a big push in India?

India is now a burgeoning and untapped market for EVs. And it is likely to figure in Tesla’s plan for the next million. But, it’s the two-wheeler segment that dominates the market in terms of volume owing to the growing middle class and young population. But what about the electric vehicle market which Tesla plans to penetrate?

Racing On The Road Ahead 

At present, India is going through its green growth pangs. According to a McKinsey&Company report, the electric vehicle adoption rate is less than 1%. However, the government has targeted 30% electric vehicle adoption by 2030. But the focus of this plan is powered primarily by electrification of two-wheeler, three-wheeler and commercial vehicles.

India has barely sold more than 8,000 electric cars in six years. However, the potential investment flow has improved. Technology maturity, commercial availability of components, lower manufacturing costs, technical and skill availability augurs well with the Indian talent pool.

Tesla Model 3 - Wikipedia
Tesla Model 3

But this doesn’t address the issue of high-prices. For example, Tesla top-selling Model 3 costs $37,990 – $54,990 (INR 28 Lakh to INR 40 Lakh)  and is yet to be launched in India. The company is expected to launch the Indian model at $95,496 (INR 70 Lakhs). Tata’s Nexon EV comes at just $22,584 (INR 16.25 lakhs) and the pack is led by Mercedes-Benz EQC (INR 99.30 Lakh), followed by MG ZS EV (INR 23.58 Lakh). It is worth noting here that India’s per capita income is $7,680 (INR 5.6 Lakh), nearly 31% lower than that of China.

India's per capita income was 31% lower than China

Besides the lack of battery manufacturing capabilities, the low availability of charging stations is another issue of concern. The charge anxiety is real. According to MarketWatch, at present, there are about 250 public charging stations operating in India. However, as per Kenneth Research, the EV infrastructure market in India is expected to grow at a compound annual growth rate (CARG) of over 40% during a forecast period 2019-2025.

But the real question is how many EV chargers would India need to support its overall goal of 30% EVs on road by 2030? The infrastructure required to sustain one million electric vehicles in the next decade will depend on different battery requirements and it’s life in Indian conditions.

According to the government of India’s Energy Efficiency Services Limited, which is the world’s largest public-sector energy service company, India will have 79 Mn electric vehicles along with 8 Mn public charging stations (slow and fast) in the next decade.

According to the Society of Manufacturers of Electric Vehicles (SMEV), India sold only 3,400 electric cars in the financial year between April 2019 to March 2020, versus 3,600 models sold in the previous year. In comparison, 1.52 Lakh electric two-wheelers were sold and 90K electric rickshaws in FY2020.

To make matters worse, the segment badly hit by the pandemic saw a fall in demand and availability of components. As per the Society of Indian Automobile Manufacturers (SIAM) estimates, the auto industry on a whole witnessed an estimated loss of INR 2,300 Cr loss per day due to lockdown.

And now, Tesla is in talks with the government of Karnataka and Maharashtra to find a spot for its first research and development (R&D) center.

Bumpy Road Ahead

Tesla can either completely manufacture the vehicle in India, or source parts from other countries and assemble the vehicle here. Praxis Global Alliance’s practice leader Sanjeev Garg explained that the overall cost of the vehicle will be increased if they import from the US, while there will be several policy issues if importing from their Chinese manufacturing plant.

“Does Tesla’s manufacturing unit justify in India? Because there is no return-on-investment (ROI) that’s going to come to them. If there is no return on India, why should I invest? Simple business philosophy,” Garg added.

Upfront cost of Evs remain the significant concern globally

Whereas Ravneet S. Phokela, the chief business officer at Ather Energy, explained, “You are not judging ROI based on what you make in two years, three years. If you are going to do that, you would have never started an automotive company. What they are looking at on a longer time horizon where it pans out for them. It may take some time for them to turn around and break-even but they eventually will.”

Phokela also noted that the return of the demand for EV will increase once the market starts maturing, but it is wrong to judge today’s demand with the units sold. This is majorly because there is a lack of a credible supply chain, and there are not enough EV models available in the market

Christie Fernandez, the founder at Sooorya EV, believes that Tesla will spur the demand for EV from all segments, though customer acquisition will be hard for the first couple of years. The problem can be solved as more affordable cars from Tesla may open up the market further.

“A lot of tech millionaires may want to flaunt owning a Tesla, and it may become a second car for many rich households,” Fernandez added.

He noted that India can become a strategic market for Tesla Right-hand vehicles.“India can also become a R&D hub, similar to other auto manufacturers having R&D centers in India, including Mercedes Benz,” he added.

Commenting on the cost of EV, a Tata Motors spokesperson explained, “EV battery cost continues to be a dominant aspect of vehicle electrification. As the conventional IC powertrains are replaced by Li-Ion battery, the cost of the propulsion system goes up significantly. This means that despite FAME incentives, the on-road price of a typical B segment car is well beyond the expectations for a retail customer, eventually limiting its penetration. Optimizing costs of the electrical drive systems and providing a commensurate payback in terms of reduced operational costs are the major challenges for automotive OEMs when it comes to the EV segment.”

Tesla has been trying to enter the Indian market but has been unsuccessful due to lack of infrastructure, policies and the market for EV. Even though the government has been promoting emobility through its taxation and budgetary policies, there is still a long way to go. Even the Indian Prime Minister Narendra Modi had shown interest in Tesla, and Transport Minister Nitin Gadkari had offered the company land near the port to import their technology.

Though there is still a lot of time for Tesla to actually hit the Indian road, the R&D unit will ensure that Tesla is fully prepared to take on the Indian electric four-wheeler market wherever it decides to launch fully. For now, expectations to see a Tesla on an Indian road is a milestone yet to be achieved.