Tesla faces bumpy ride in India after China’s success

Photographer: Qilai Shen / Bloomberg

Elon Musk almost confirmed Tesla Inc. will enter India last week, sparking jubilation among fans, some of whom have electric cars on order for years. But it may prove to be the company’s most difficult market to break into to date.

Richest man in the world on January 13 tweeted “as promised” in response to a reports on a Tesla blog that the automaker was in talks with several Indian states to open an office, showrooms, research and development center – and possibly a factory.

“It’s really happening,” said Nikhil Chaudhary, a 20-year-old student at the University of Delhi who helped start Tesla’s fan club in early 2019, adding that he had “gone mad” upon hearing the news.

Arun Bhat, 34, a business manager in Bengaluru, the city formerly known as Bangalore, was also delighted, saying there was finally a chance he could get behind the wheel of the Tesla Model 3 he took. ordered in 2016.

Despite all the hype, Tesla’s foray into India is far from over. The company is in talks with state officials but has yet to decide on an Indian base, according to the Tesmanian blog post that sparked Musk’s response, after months of unsubstantiated speculation in local media. A representative for Tesla in Beijing declined to comment.

Although India is Asia’s third-largest economy and home to a budding middle class, it hasn’t rolled out the welcome mat for electric vehicles, unlike neighboring China, where Tesla set up its first factory in outside of the United States and now dominates electric car sales. .

Electric vehicles account for about 5% of annual car sales in China, according to Bloomberg New Energy Finance, compared to less than 1% in India. And most market watchers expect China to lead other countries in electric vehicles in the short term, thanks to generous government subsidies, a desire for greener vehicles among the young and mobile population. country and a strong charging network.

According to the International Energy Agency, around 60% of public slow and fast charging stations can be found in China. As Chinese automakers roll out competitive electric vehicle models and develop a diverse ecosystem, the country is “heading towards disrupting the current global automotive industry landscape,” analysts at UBS Group AG wrote in a report. last month.

India has taken measures, but they are not on the same scale.

In 2015, he launched a plan for the adoption and faster manufacture of hybrid vehicles and electric vehicles (FAMEs), with a pledge of 9 billion rupees ($ 123 million) for grants that cover everything from tricycles electric buses, according to the IEA. A The second generation of the FAME program introduced in 2019 was larger, with Rs 100 billion to encourage purchases of electric vehicles and build charging infrastructure.

Shock sticker

India also reduced the goods and services tax on electric vehicles to 5% from 12%, as of August 2019, far less than the 28% taxes imposed on other motor vehicles, which have attracted criticism from companies like Toyota Motor Corp.

Read more: India has 150 million drivers and only 8,000 want electric cars

But compare that to China, where utility State Grid Corp. of China has pledged to spend 2.7 billion yuan ($ 416 million) on charging stations in 2020 alone. Another sign of China’s much broader commitment, the state-owned company China Southern Power Grid Co. has announced plans to invest 25.1 billion yuan in charging infrastructure over four years. These expenses come after several years of heavy subsidization of consumer electric vehicle purchases to launch the market.

Cost will also be a major obstacle.

India’s FAME programs won’t do much to help lower the price for potential Tesla customers, as the upper limit for an electric vehicle to qualify for subsidies is 1.5 million rupees. Teslas will cost more than that and therefore will not be eligible, according to BNEF analyst Allen Tom Abraham.

An entry-level, Chinese-built Tesla Model 3 starts at 265,740 yuan, or about $ 40,960, while the Model Y sport utility vehicle crossover from Shanghai, which can travel nearly 600 kilometers (373 miles) with a single charge, costs 339,900 yuan. With the export expense on top of that, the sticker on a Tesla retailed in India would put it out of the reach of most drivers.

About 75% of all Indian auto sales are in the $ 10,000 and under bracket, about half the average price in China, and only 25% of the average in the U.S. That means even the most expensive car Tesla’s affordable price will likely only appeal to about 1% of the market, said Singapore-based Abraham. “The volumes they can expect in a market like India will be really very low,” he said.

Manufacture of sweeteners

Still, India’s electric vehicle market is growing and could be worth nearly $ 206 billion over the next decade, according to a study by the CEEW Center for Energy Financing, which Noted an investment of over $ 180 billion would be needed by 2030 to achieve this.

And in a country as large as India, a product with a small market share could prove attractive to Tesla, especially given the brand’s strong brand awareness among affluent and environmentally conscious Indians. “Education on solar energy and electric vehicles is essential,” Chaudhary writes on the Tesla India Fan Club website. “We need to educate people about sustainable energy. We need to tell people the positive impact on their life. “

According to Rajeev Singh, partner and automotive leader at Deloitte India, Tesla is already a household name – “there is an attraction from a brand point of view” – and the luxury car segment in India is also on the verge of. grow by about 15%. the next five to seven years, or roughly double the total market, Deloitte predicts.

While it is not clear how seriously Musk thinks about the prospect of ever making cars in India, the government is would have trying to attract reputable manufacturers, and Tesla would be the ultimate capture – as it did with China.

Businessweek: Elon Musk loves China and China loves him back – for now