Tesla, the trailblazing electric vehicle (EV) manufacturer led by billionaire entrepreneur Elon Musk, has been making headlines in India with its plans to establish a manufacturing base in the country. After initial roadblocks and discussions with the Indian government, Tesla is now seriously considering setting up a plant in India, marking a significant shift in its strategy.
The proposed facility will be able to produce as many as 500,000 electric cars annually. Tesla has begun discussions with the Indian government for an investment proposal to set up a factory in the country.
The prices for the vehicles will start from 20 Lakhs ($24,400.66). Tesla is also considering using India as an export base as it plans to ship cars to countries in the Indo-Pacific region. This move holds great promise for the Indian EV market and its growing demands.
Navigating Initial Challenges
Tesla’s efforts to penetrate the Indian market have faced obstacles since 2019, primarily due to the high import taxes imposed on electric vehicles. Elon Musk has tweeted on several instances quoting non-cooperation from Indian officials to lower the import duties. This was met with a few state governments grabbing the chance to invite him for an import base, but the central government needed to budge.
The Indian government recently changed the Goods and Services Tax (GST) for domestic EV manufacturers, reducing it to 5%. In contrast, internal combustion engine vehicles face GST rates ranging from 29% to 50%. Currently, there are no specific incentives or support for EVs that are not manufactured in India. This was the reason why the government did not accept Tesla’s demands. The government promotes local manufacturing under the “Make in India” initiative rather than encouraging imports of EVs abroad.
India levies a 60% import tax on electric vehicles priced at $40,000 or below and a 100% tax on those above $40,000. For Tesla, whose cars start at $44,690 (approximately Rs 34 lakh) in the US, selling cars in India with such import taxes would result in a significantly higher price of around Rs 60 lakh per car, taking away its advantage of competitive pricing against other domestic EV car manufacturers in India.
While the Indian government urged Tesla to manufacture vehicles locally, Musk sought lower import duties first, making it a deadlock conversation.
The Apple Parallel
Tesla’s problems in India resemble to what Apple encountered when it sought to enter the Indian market in 2017.
Apple faced rejection from the central government and especially from Nirmala Sitharaman, the then Commerce Minister, for import duty concessions on capital equipment, components and consumables as a precondition for local manufacturing. However, Apple eventually started assembling and manufacturing iPhones domestically, aligning with India’s “Make in India” program. By expanding its retail presence and price adjustments, this approach helped Apple gain market share and solidified its position in the country.
Tesla’s New Approach and Opportunities
In a notable shift, Tesla has shown keen interest in the Indian government’s proposal to not only assemble cars domestically but also establish a vendor base in the country. Tesla sees the value of integrating manufacturing and supply chain processes, highlighting its seriousness about setting up a manufacturing unit in India.
Musk said after meeting PM Modi that he hopes to bring SpaceX’s Starlink satellite internet service to the country as well. In an interview, Elon Musk eagerly stated he aims to bring Tesla to India as soon as it will be humanly possible. He seeks to have Starlink internet tech reach the rural and remote areas of the vast Indian land.
With the Indian government committed to collaborating with Tesla for the success of its investment and ambitious plans in India, the prospect of a Tesla manufacturing unit in the country holds immense promise. As Tesla finalizes its plant site by December 2023, the company may align with India’s Atmanirbhar Bharat (self-reliant India) and Make in India initiatives, bringing a new era of sustainable mobility and technological innovation to the country.