India EV Landscape Hots Up as States Eye a Piece of Tesla Action

Verghese V Joseph –

Bengaluru, April 17, 2024: The Indian state of Rajasthan has joined the ranks of other states vying for Tesla’s investment to establish a $2–3 billion state-of-the-art manufacturing factory in India.

On April 22, Elon Musk, the CEO of Tesla, is scheduled to meet with Indian Prime Minister Narendra Modi. Following their meeting, an announcement regarding its Indian foray can be expected.

In addition to Rajasthan, which recently joined the Indian market, other states vying for Tesla’s investment include Karnataka, Maharashtra, Gujarat, Tamil Nadu, and Telangana. Tesla has received generous land offers from Gujarat, Maharashtra, and Karnataka for the construction of an EV manufacturing facility. In advance of its intentions to start selling in India later this year, Tesla is also considering opening showrooms in New Delhi and Mumbai.

Tesla is reportedly scouting for a suitable site to build its facility. Tesla’s introduction into the Indian market is consistent with the government’s aggressive promotion of the production of electric vehicles (EVs). In order to incentivize international electric vehicle manufacturers to attain noteworthy levels of domestic value addition, the government has established a minimum investment threshold of Rs. 4150 crore, or around USD 500 million.

Potential huge boost to manufacturing sector & Make In India

Tesla’s entry into India is expected to bolster the country’s Make in India initiative and foster the adoption of advanced EV technology among Indian consumers. The company’s move underscores its commitment to expanding its operations and enhancing its presence in India’s business landscape.

By the third year of setting up the manufacturing unit, at least 25 per cent of the parts used to make the vehicles should be sourced from within India. This localization level is expected to increase to 50 per cent by the fifth year of operation.

Tesla is likely to first introduce fully imported cars in India to gauge customer response and gather data about how their EVs perform in Indian climate and road conditions.

This input would be helpful for the company’s ultimate goal – setting up a manufacturing plant in India to sell locally-made and accessible electric vehicles. In order to establish a strong foothold in India, Tesla India Motor and Energy Pvt Ltd has leased a sizable office space in Pune. The 5,850 square feet facility, located at Panchshil Business Park, marks Tesla’s first real office setup in the country.

Tesla’s substantial investments in India are poised to catalyse growth and innovation in the EV sector, and the company’s entry into India is expected to create new job opportunities and contribute to the country’s economic growth.

Key challenges for Tesla in setting up manufacturing in India

While the race to attract Tesla’s investment is heating up among Indian states, Tesla may face several challenges while setting up a manufacturing plant in the country.

One of the primary challenges that Tesla may face is India’s high import duties on cars. Currently, India imposes 100% import duty on cars with a cost, insurance, and freight value of more than $40,000, and 60% on cheaper vehicles. Tesla has been pushing for lower import duties, arguing that the current rates are too high and make its cars uncompetitive in the Indian market. However, the Indian government has been reluctant to lower the duties, stating that it wants to encourage local manufacturing and investment.

Besides high import duties, competition from local manufacturers, difficulties in sourcing components locally also present significant challenges.

However, Tesla’s entry into India is expected to drive the growth of the electric vehicle market in the country, leading to a reduction in carbon emissions and contributing to a more sustainable future. The company’s presence in India is also expected to spur competition in the domestic electric vehicle market, leading to better products and services for consumers.

Tesla is likely to face competition from local electric vehicle manufacturers, who have already made substantial investments in manufacturing electric vehicles and their components. With the prospect of high-end EVs like Tesla’s being available at a lower price due to reduced import taxes, local manufacturers might face increased competition.

Tesla may also face challenges in navigating India’s complex regulatory environment. The company has been in talks with the Indian government for over a year, but the discussions have been slow. The Indian government has been pushing for Tesla to manufacture in India as a precondition to easing duties, while Tesla has been pushing for lower import duties to test-market its products before fully committing to the market.

However, if Tesla can overcome these challenges, it could potentially disrupt India’s tardy electric car market and establish itself as a major player in the country’s automotive sector.