India Blocks BYD’s Market Entry While Wooing Tesla

A strong message has been sent by India regarding foreign investment, specifically when it comes to allowing investment from certain countries. BYD, the largest electric vehicle maker in China, has recently been denied permission to set up a large manufacturing base in India. Although the precise reasons for this denial have not been articulated, they seem to stem from a desire to prevent investment from countries that are considered strategic rivals.

This action corresponds with India's previous dismissal of BYD's $1 billion offer with Megha Engineering, a collaboration that failed to materialize, particularly after Megha's connection to the electoral bonds scandal came to light. In a comparable fashion, Great Wall Motor, another Chinese carmaker, deserted India after it encountered constant regulatory problems.

Deepening Concerns Over Chinese Firms

India is still suspicious of investments by Chinese corporations due to their dubious corporate structures and potential ties to the Chinese government and military. Officials point out that practices normal for a market economy, like state subsidies and favorable loans, distort competition and make Chinese investments seem attractive when they aren’t. Geopolitical tensions have eased a little since the summer of 2020, but at the moment, the Indian government is still using Press Note 3 as a way of keeping potentially harmful investments at bay.

Speculation exists that Chinese companies, unhappy with recently imposed restrictions, are now trying to solve that problem by offering a lesser stake in joint ventures to Indian companies. But what does the Indian government think about all this? It seems not too happy itself about Chinese investment and is thus in no hurry to ease the enhanced restrictions, especially in the extremely sensitive area of electric mobility.

India Rolls Out the Red Carpet for Tesla

India seems to be working hard to woo Tesla. Unlike Europe, which has dragged its feet in delivering the promised permits to install production facilities, India has, according to Tesla's CEO, provided the go ahead to set up a factory in India. In the interim, the company is employing a strategy that involves contract manufacturing and using the existing automotive production infrastructure within India to make its vehicles. The company is also busy setting up Tesla stores within the major metropolitan areas from which it intends to draw demand.

A Tightrope Between Protection and Progress

The costs of land and labor in India are significantly less expensive than in the U.S. or Germany. Setting up a facility in India that costs only USD 2–3 billion is an attractive proposition, less than half the price of either the Berlin or Texas gigafactories.

Though India aims to be a global electric vehicle (EV) hub, the country imposes very high import duties that act as a barrier. They are among the steepest worldwide, in fact. These tariffs are why Tesla has hesitated to set up shop in India, even as it has tried to establish manufacturing plants in other parts of the world.

India's hesitance to allow BYD to operate freely is as much about protecting domestic interests as it is about geopolitical caution. Here, we are talking about a company that already produces over 1,200,000 electric vehicles a year. These are affordable, yet efficient vehicles. BYD poses a greater competitive threat to Indian automakers than does Tesla, which sells its cars at a much higher price point. Allowing BYD to operate in India could dramatically change the electric vehicle landscape in India's favor, if India's own EV automakers were allowed to operate in a fair competitive environment.