Inicio EV Why is Elon Musk wooing Modi? A look into Tesla’s India prospects

Why is Elon Musk wooing Modi? A look into Tesla’s India prospects

Why is Elon Musk wooing Modi? A look into Tesla's India prospects

Tesla CEO Elon Musk is coming to meet Prime Minister Narendra Modi. He posted on X that he is looking forward to meeting PM Modi in India. In June last year, following a meeting with PM Modi in New York, Musk had said, “I am confident that Tesla will be in India… as soon as humanly possible.”

All indications point to Musk visiting India to announce his ambitious project, groundwork for which is being done for years. The project is likely to see Tesla commit at least $2-3 billion investment as it sets up a factory to manufacture entry-level electric cars (speculated as Model 2 to be priced around Rs 25 lakh).

After negotiating with Tesla for a long time, India recently unveiled a policy extending concessional tariffs on fully imported electric cars manufactured by foreign carmakers who commit investments to start a local factory.
Under the new EV policy announced March 15, the government will allow the import of completely built-up (CBU) electric cars that have a minimum cost, insurance and freight value of $35,000 (Rs. 29.2 lakh) at 15% import duty for a period of 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. While Vietnamese EV maker VinFast has indicated it is likely to sign up for the policy, no announcements have come from Tesla so far.

Tesla currently has two vehicle manufacturing facilities outside the US — near Berlin (Germany) and in Shanghai (China).

While Tesla’s entry into India gives the country’s Make-in-India project a big boost after it got another mega brand Apple to manufacture iPhones here, India too has a lot to offer to Tesla at the juncture when the iconic automobile company is struggling with declining sales, plummeting stock, low investor confidence and lack of new ideas, all amid growing competition from its American and European rivals as well as aggressive Chinese car makers.

Tesla’s rough drive

As Tesla struggles with low sales, it gives the impression that it is past its high-growth phase.It sold about 387,000 cars in the first quarter, while analysts on average thought that number would be around 449,000, Bloomberg reported. Obviously, profit estimates for the quarter will now have to be cut, after already dropping by more than half in a year. It also puts the company on track for a second straight year of declining annual earnings. In fact, analysts on average now expect that it will take until 2026 for Tesla to exceed the level of profitability it posted in 2022.

“There is not a lot of visibility on where Tesla’s next leg of growth will be — whether EVs or its other projects,” Nicholas Colas, co-founder of DataTrek Research, told Bloomberg a week ago. “If you are going to command a premium multiple you will have to have great earnings visibility or a fantastic story on why those earnings will show up in the future. Tesla has neither at the moment.”

Tesla’s stock has fallen more than 30% this year. A sharp dip came early this week after reports that the company has shelved its low-cost EV plans, even though Musk denied it. He had to hype his robotaxi idea to rescue Tesla’s tumbling stock.

Reuters had reported based on information from sources that Tesla has canceled the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker.

Tesla’s cheapest current model, the Model 3 sedan, retails for about $39,000 in the United States. The now-defunct entry-level vehicle, sometimes described as the Model 2, was expected to start at about $25,000.

The stark reversal comes as Tesla faces fierce competition globally from Chinese electric-vehicle makers flooding the market with cars priced as low as $10,000. The plan for driverless robotaxis, which could take longer to deliver, presents a stiffer engineering challenge and more regulatory risk.

Squeezing profits from entry-level vehicles is a challenge for any automaker. But Tesla’s delay in pursuing the car Musk once called his dream made it much tougher because it now faces far more competition in that price range.

While Tesla spent years developing its highly experimental Cybertruck, a pricey electric pickup, 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.

As Chinese EVs surged to challenge Tesla’s dominance, Musk was tending to his sprawling empire, which includes rocket-maker SpaceX, brain-chip developer Neuralink, and social media giant X, which Musk acquired in 2022. Formerly called Twitter, the platform has foundered under Musk’s volatile management, shedding most of its value as the company has lost revenue and advertisers.

Plans for the affordable Tesla have been seen as key to delivering on Musk’s stratospheric ambitions for sales growth. Musk said in 2020 that Tesla aspired by 2030 to sell 20 million vehicles – twice as many as the world’s largest automaker, Toyota, sells today. With the death of the Model 2, it’s unclear how he’ll get there.

What India offers to Tesla

India’s huge car market, with a new love for SUVs, can offer a much needed scope of growth for Tesla if it makes and sells its affordable EV here.

Domestic electric passenger vehicle sales have picked up pace, with the number of mass-market models growing threefold to a dozen by seven companies in 2023, from just four models by three manufacturers prior to the pandemic, according to data collated by automotive market research firm Jato Dynamics. Tata Motors dominates the local EV market, followed by MG Motor India and Mahindra & Mahindra. “The EV contribution in our portfolio is likely to increase to 25% in five years and reach 50% by 2030,” Tata Motors said in its annual report for FY23.

Strong growth in electric volumes is being triggered by government incentives to support both EV manufacturing and charging infrastructure, falling battery prices and increasing consumer awareness. This has also led to a surge in the number of new models, giving consumers a wider choice.

India’s nascent market with a huge growth potential could be highly beneficial for a struggling Tesla if it makes its Rs 20 lakh car here.

While there are concerns over the Chinese companies rushing to India after the new EV policy which can overwhelm Tesla in India with their cheaper EVs, it seems highly unlikely given the Indian government’s discouragement of Chinese investments. Last year in July, Reuters reported, China’s BYD told its India joint-venture partner it would shelve plans for a new $1-billion investment to build electric cars after its investment proposal faced scrutiny from the government.

As for the luxury segment, India units of luxury car manufacturers such as Mercedes-Benz, BMW and Audi may steer clear of the government’s new EV policy, ET has reported. Given that luxury car manufacturers have already invested in India through plants and operations, they don’t see much benefit in another large investment for a segment that’s currently less than 2% of the broader car market. Besides, assembling kits in India already allows for a lower duty structure.

India offers Tesla a market with huge potential for its affordable as well as other models while shielding it from its big rivals as well as incapacitating competition from Chinese car makers which are flooding the world with low-priced EVs.

(With inputs from agencies)