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Sour grapes? China thinks Tesla’s India biz will be doomed

Sour grapes? China thinks Tesla's India biz will be doomed

China has not liked Tesla CEO Elon Musk planning to open an electric car factory in India. Musk is set to travel to India later this month and meet Prime Minister Narendra Modi, with plans for a Tesla factory expected to be announced.

Musk has negotiated with the Indian government for long. He preferred to import cars into India at a lower duty while India wanted him to manufacture cars locally. He is likely to announce Tesla’s India entry after the government announced its new EV policy last month which is likely to suit him. The government will allow the import of completely built-up electric cars that have a minimum cost, insurance and freight value of $35,000 (Rs. 29.2 lakh) at 15% import duty five years in exchange for a minimum investment of $500 million to start local manufacturing. India levies import duty of up to 100% on completely built-up cars.

Read| Musk coming to India this month, may announce Tesla’s India plan during meeting with PM Modi
But China is not liking Tesla’s likely India entry. The Global Times, considered a mouthpiece of the Chinese government, has put a hex on India’s ambitious step to invite Tesla by predicting it is not going to work because it’s too soon for a grossly underprepared and immature Indian market. The doomy commentary ignores that several big Chinese EV makers have earlier shown interest in manufacturing EVs in India but the Indian government did not allow them. India-China ties have deteriorated due to border disputes over which skirmishes had erupted earlier. India has put Chinese investment under deep scrutiny and has probed several Chinese businesses for wrong-doings.

Sour grapes?
While saying that Tesla’s long-awaited investment in an EV facility in India will undoubtedly be good news for India and help boost EV production, the Global Times article goes on to argue why Tesla might not be successful in India.

«As for Tesla, which focuses mainly on the mid- and high-end sectors and mature markets, nobody knows if it will find success in India,» the article says. «While India’s EV market is growing, its size is small. Some statistics showed EVs accounted for just 2.3 percent of total passenger vehicles sold in India in 2023.»
It says a key barrier India faces for large-scale adoption of EVs is the absence of public charging infrastructure, and to make matters worse, consumers face frequent power outages in some regions of India. It says a power shortage is brewing in India and India’s expansion of coal mines and power plants to generate more power will make it hard to meet climate goals.
It also questions if India’s immature market can digest enough Tesla cars and allow it to make profits.

Another challenge the article lists is the supply chain. «One of the biggest issues is the limited domestic production of core components like lithium-ion batteries for EV. India is starting relatively late in trying to create an indigenous EV supply chain,» it says.

It recommends India to follow a more «realistic» approach than having Tesla to manufacture EVs in the country. «Given the complex economic landscape, India’s EV ambitions should, more realistically, be implemented step by step with patience and openness,» it says. «In this process, it is advised that India consider strengthening cooperation with neighboring countries and promote manufacturing development with a more pragmatic attitude.»

So, it wants India to have Chinese companies build EVs instead of Tesla. While the challenges listed by the Global Times article do persist more or less, they aren’t something that will jeopardise the Tesla business. In fact, the Chinese argument is a classic case of sour grapes since many Chinese EV companies have tried to set up manufacturing in India but were denied permission by the government.

Last year, the government rejected Chinese automaker BYD’s proposal to set up a $1 billion factory in India in partnership with a local company Megha Engineering and Infrastructure Ltd. In 2022, the government blocked efforts by Chinese carmaker Great Wall Motor to buy a manufacturing plant from General Motors in India. MG Motor, owned by SAIC Motor Corporation of China, has entered into a JV with India’s JSW Group to manufacture EVs.

Clearly, Chinese companies wanting to manufacture EVs in India think nothing of the challenges the Global Times article says might lead to Tesla’s failure in India.

Tesla’s China problem and India promise
Tesla runs a factory in China which has started facing challenges. Last month, Tesla shares fell when data showed that deliveries from Tesla’s Shanghai Gigafactory slumped. Later in the month, Bloomberg reported Tesla had reduced its car production at its plant in China as the American EV-maker grappled with slow demand and strong competition in the market.

The company had told employees at its Shanghai factory to lower output of both the Model Y sport utility vehicle and Model 3 sedan – the two types it makes in China – by working five days a week instead of the usual 6-1/2 days, the report claimed.

Also, Tesla delivered 387,000 cars worldwide in the first quarter, down 8.5% from 423,000 in the same period last year. This was the first time Tesla’s quarterly sales have fallen on a year-over-year basis since a modest drop at the start of the pandemic in 2020.

Tesla faces fierce competition from Chinese EV makers flooding the market with cars priced as low as $10,000. In China, Tesla faces BYD and dozens of other rivals with ambitions to expand worldwide. Tesla rivals have continued to report sales increases. BYD said it sold about 300,000 electric vehicles in the first three months of the year, up 13% from a year earlier. The company also sold 324,000 plug-in hybrid vehicles in the first quarter, up 15%. BYD and other Chinese automakers have introduced new models rapidly, often undercutting Tesla on price. Those companies are also increasingly exporting cars to Europe, Southeast Asia and Latin America.

Chinese automakers have raced ahead on affordable EVs, grabbing market share, gaining economies of scale and offering consumers bargain prices that Western automakers are struggling to match.

Fierce competition from Chinese EV makers have forced Tesla to cancel the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker, as per Reuters.

However, India offers China a vast, untapped market where EV penetration is still very low.

Electric-vehicle sales in India are expected to rise 66% this year after nearly doubling in 2023 as state subsidies help fuel demand and supporting infrastructure comes up in the country, according to research firm Counterpoint.

India’s EV market, small but growing, is dominated by domestic carmaker Tata Motors. Electric models made up 2% of total car sales in 2023 but the government is targeting 30% by 2030.

Another ambitious EV maker, Vietnam’s VinFast, is betting big on India’s potential. It plans to invest $2 billion in a plant in the country to manufacture electric cars. A spurt in EV manufacturing will spur creation of infrastructure, ecosystems and supply chains. The entry of a global major like Tesla is certainly going to speed up India’s EV sector growth.

China won’t like the prospect of India trying to set up its electric car industry without much Chinese involvement, and one day down the line competing with it in African and Asian markets.

(With inputs from Bloomberg and Reuters)