Tesla's India Entry Gathers Momentum as Deal with Delhi Nears

Tesla Inc., the renowned electric vehicle manufacturer, is nearing an agreement with the Indian government that would allow the company to import its vehicles into the country starting next year and establish a manufacturing plant within the next two years, according to sources familiar with the discussions.

Potential Timeline and Location for Tesla's Indian Operations
Investment and Procurement Plans
Discussions and Opportunities
Challenges in the Indian EV Market
Tesla's Pricing Strategy and Import Duties
Trade Minister's Visit and Tesla's Procurement Plans
Resumption of Discussions and Potential Tax Relief
Tesla's Ambitions to Become India's Third-Largest Car Manufacturer
Gigafactory Location and Government Support
Production Linked Incentive Scheme and FAME 3 Scheme
India's Electric Vehicle Revolution Propelled by Affordable $10,000 Cars
Dominance of Affordable Small Cars and Compact SUVs

Potential Timeline and Location for Tesla's Indian Operations

An official announcement of this collaboration is expected to be made at the Vibrant Gujarat Global Summit in January 2024. The Indian government has identified three potential locations for Tesla's manufacturing plant: Gujarat, Maharashtra, and Tamil Nadu. These states have well-established ecosystems for electric vehicle production and export capabilities.

Investment and Procurement Plans

Tesla is anticipated to make an initial investment of approximately $2 billion in the proposed plant. The company also intends to significantly increase its procurement of auto parts from India, aiming to reach a value of $15 billion. To reduce costs, Tesla plans to manufacture some batteries in India as well.

Discussions and Opportunities

While these plans are not yet finalized, the possibility of changes remains. Elon Musk, Tesla's CEO, previously announced in June 2023 that the company plans to make a "significant investment" in India and expressed his intention to visit the country in 2024.

Entering India's vast market, with its growing demand for electric vehicles among the aspiring middle class, would be a significant opportunity for Tesla. The Indian government, under Prime Minister Modi, has been actively promoting domestic manufacturing of electric vehicles and encouraging the rapid adoption of cleaner transportation.

Challenges in the Indian EV Market

Despite these efforts, the electric vehicle market in India has not witnessed substantial growth. Battery-powered cars constituted only 1.3% of the total passenger vehicles sold in India last year. Consumers remain hesitant to switch to electric cars due to the high upfront costs and a lack of charging infrastructure.

Tesla's Pricing Strategy and Import Duties

Tesla currently does not directly import cars into India due to the high import tariffs imposed. When locally manufactured Tesla cars become available for sale, they could be priced as low as $20,000, according to some sources.

Trade Minister's Visit and Tesla's Procurement Plans

Trade Minister Piyush Goyal, who visited Tesla's plant in Fremont, California, stated in September 2023 that Tesla plans to nearly double its purchases of auto parts from India to $1.9 billion this year. Last year, the electric carmaker sourced parts worth $1 billion from India.

Resumption of Discussions and Potential Tax Relief

Tesla's interactions with India resumed in May 2023 after a year-long impasse. There are now discussions about potentially lowering import taxes for international electric vehicle manufacturers for five years if they commit to establishing local factories.

Tesla's Ambitions to Become India's Third-Largest Car Manufacturer

Tesla is gearing up to introduce a comprehensive range of electric vehicles and establish a robust charging infrastructure in India on a large scale. The company aims to offer electric vehicles at a competitive price range, with specific pricing details yet to be finalized.

Gigafactory Location and Government Support

Should Tesla's proposed plans materialize, the company is poised to become India's third-largest car manufacturer, following Maruti and Hyundai. Ongoing discussions between Tesla and Indian government officials will delve into localization strategies, including the identification of a suitable location for the gigafactory.

Production Linked Incentive Scheme and FAME 3 Scheme

There are indications that India may consider implementing a second phase of the Production Linked Incentive scheme to provide support to Tesla. Government officials are also engaged in talks with the industry to explore the expansion of the FAME 3 scheme, considering that the FAME 2 scheme is scheduled to conclude in March 2024.

India's Electric Vehicle Revolution Propelled by Affordable $10,000 Cars

India's electric vehicle (EV) market is witnessing a remarkable surge, fueled by the introduction of cost-effective new models. Sales of passenger EVs in the country have soared to an impressive 75,000 units in the nine months leading up to September, representing a more than twofold increase from the same period last year.

While EVs still account for a modest 2.4% of the total market share, a closer examination of the underlying trends reveals a crucial insight for EV manufacturers seeking to penetrate the Indian market: An astounding 86% of all-electric cars sold this year were priced under $20,000.

This surge in demand is attributed to the introduction of several new models this year, including the most affordable option, MG's Comet mini car, priced at less than $10,000. Tata Motors' popular Tiago compact EV, which accounts for 39% of EV shipments, retails for around $10,500, with deliveries commencing earlier this year.

Dominance of Affordable Small Cars and Compact SUVs

An analysis of statistics across all drivetrains further underscores the dominance of affordable small cars and compact SUVs. Approximately 69% of cars sold in India last year were priced below $15,000, with 27% costing less than $10,000. Even top-selling combustion-engine models like Suzuki's Swift and Wagon R retail for under $8,000.

By offering EVs at comparable prices, automakers have successfully tapped into demand from private customers, particularly those commuting in India's urban centers. The growing popularity of battery-powered cars among ride-hailing and taxi companies is also driven by their low operating costs.

This surge in demand has prompted significant commitments from automakers to increase local EV production, with nearly $5.4 billion in investments pledged to establish or expand EV manufacturing facilities in India, as reported by BloombergNEF. These commitments come from both domestic players such as Tata Motors and Mahindra & Mahindra, as well as international players like Hyundai, Kia, and Vietnamese EV startup VinFast.

While promises to establish local battery plants are also on the rise, supported by government subsidies, one aspect of India's EV ecosystem that lacks concerted efforts, particularly from private companies, is the charging network. Most public charging stations are currently concentrated in major cities like Delhi, Mumbai, and Bengaluru, with many designed to support electric two- and three-wheelers. To fully accelerate the next phase of EV adoption, more comprehensive efforts are needed to expand the charging infrastructure across the country.

EV Investments Surge, But Hopes Pinned on Govt Policy Push

As investments in electric vehicles soar, the future hinges on government policies. It, however, remains to be seen if India manages to hit a sweet spot in the EV sector.

StartupTalkyPrithvi Durai