Elon Musk wants to make Tesla cars for Indian roads; What stopped him for so long?

In July, Elon Musk’s Tesla initiated talks with the Indian government regarding an investment proposition to establish an automobile manufacturing facility within the nation. The proposed factory is intended to have the potential to produce up to 500,000 electric vehicles on an annual basis.

Following a prolonged period of uncertainty, the much-anticipated strategy of Tesla foraying into the Indian market appears to be picking up momentum. Allegedly, the proposal revolves around establishing a manufacturing facility in India capable of producing up to 500,000 electric vehicle units annually. As per the report by Times of India, the pricing for these cars could commence from a figure as modest as Rs 20 lakh.

The proposal revolves around establishing a manufacturing facility in India capable of producing up to 500,000 electric vehicle units annually. As per the report by ToI, the pricing for these cars could commence from a figure as modest as Rs 20 lakh.

Indian government trying to crack the best deal possible

If the reports are to be believed, India’s commerce and industry ministry is at the forefront of these dialogues. The government aims to formulate a mutually advantageous agreement that ensures fairness across the board. Following its operations in China, the company is now setting its sights on transforming India into a hub for exports, catering to markets in the Indo-Pacific region, as outlined in the ToI report.

This recent advancement aligns with the company’s intent to invest in India, a move that transpired a few weeks after Elon Musk’s encounter with Prime Minister Modi during the latter’s diplomatic tour of the United States. Musk, who expressed his admiration for PM Modi, disclosed after their meeting that the Prime Minister had been encouraging him to increase his commitment to India. Tesla’s contemplation of investment in India is viewed as a strategic step congruent with its worldwide corporate approach to broaden production origins beyond China.

Should this proposal come to fruition, it stands to significantly amplify the momentum behind the Modi government’s Make in India campaign. Within the Make in India framework, enterprises, including vendors associated with Apple, are making substantial investments in domestic manufacturing while harnessing the nation’s potential as a foundation for exports.

Tesla’s interest in the Indian market has spanned a considerable duration, yet the company’s trajectory toward this objective has exhibited a certain on and off.

What has stopped Tesla from entering the Indian market?

Elon Musk, in his persistent endeavor to introduce Tesla to the Indian market, grappled with the “crucial obstacles” stemming from governmental factors. These hurdles previously prevented his electric vehicles from cruising along the nation’s roads.

Despite alluring incentives and assurances extended by the government, alongside repeated appeals from prominent ministers to “establish manufacturing/assembly operations for your vehicles here,” Musk remained engaged in addressing many issues with the authorities.

According to experts in the industry, the primary hurdle confronted Tesla’s entry into the Indian market revolved around import tariffs. While the Tesla Model 3 boasts a global price tag of $39,990, rendering it relatively affordable within the United States, these import duties threaten to render it prohibitively expensive within the Indian market, potentially elevating the anticipated cost to around Rs 60 lakhs.

India imposes a hefty 100 percent tax on imported vehicles exceeding a value of $40,000 (equivalent to Rs 30 lakhs), encompassing insurance and shipping expenses. Vehicles priced below $40,000 are subject to a 60 percent import tax. The government might contemplate a reduction in import duties coupled with the provision of other incentives to accommodate Tesla’s interests. However, to avail such benefits, the electric vehicle giant was required to make an investment towards establishing a domestic manufacturing facility.

Last year, Tesla abandoned its intentions to establish a presence in the region, as it was unable to secure specialized incentives from the government to facilitate the import of its vehicles with reduced tariffs. The Modi administration has maintained a strict stance, emphasizing that Tesla should engage in local car production instead of relying on imports from various sources, including China.

A cheaper EV can pull many potential buyers in India

India has been fervently promoting substantial opportunities within its domestic automobile industry, which presently ranks as the globe’s fourth-largest. This achievement was cemented by the conclusion of the previous year, during which sales reached approximately 3.9 million units. This positions India behind only China, the United States, and Japan in terms of market size, as emphasized in the ToI report.

The enticing Rs 20 lakh price point has the potential to wield significant allure for customers, given that electric vehicles (EVs) currently tend to occupy a considerably higher price bracket. The substantial price disparity between EVs and conventional internal combustion engine (ICE) vehicles remains quite pronounced. Although this gap is gradually diminishing, experts within the industry posit that reducing prices further could substantially incentivize a larger segment of Indian consumers to embrace EVs.

Tesla could emerge as a top player in India

As reported by ET in April, the average cost of an electric passenger vehicle had surged to more than double (137%) the price of its petrol-powered counterpart back in 2020. However, this discrepancy has currently contracted to 73%, according to data furnished by Jato Dynamics.

Should Tesla’s intentions come to fruition, the company will position itself as the third-largest automobile manufacturer in India, trailing only behind Maruti and Hyundai. Subsequent discussions between Tesla and officials from the Indian government are set to ensue, delving into the intricacies of localizing operations. This encompasses not only pinpointing an appropriate site for the gigafactory but also encompasses a broader dialogue on various aspects of their business plans.

Furthermore, there is a possibility that India could contemplate the initiation of a subsequent stage of the Production Linked Incentive initiative aimed at providing assistance to Tesla. In tandem, government officials are engaged in conversations with the industry regarding the potential expansion of the FAME 3 scheme, given that the FAME 2 program is poised to conclude its run by March 2024.