Negotiations are still deadlocked after five years: Tesla "folds" the Indian market?

Photo: Xinhua

Source: 21tech

Author: Peng Suping

Editor: Ruosi Zhang

Tesla, whose sales performance is in full swing, has been delayed again and again in entering the Indian market.

Recently, some netizens asked on the social network platform, when will Tesla launch electric vehicles in India? Tesla CEO Elon Musk replied, "Still overcoming many challenges from the local government." ”

Tesla began planning to enter India early on. As one of the world's largest single car markets, India's annual car sales can reach about 3 million, and Tesla, which has aggressively expanded and set an average annual sales target of 50%, will naturally not let go.

But Tesla has not made substantial strides in the Indian market, mainly hindered by high import tariffs, which can be as high as 100% for a luxury electric car like Tesla. Musk has been negotiating with the Indian government over the past few years in hopes of lowering tariffs, but the government has not made concessions.

The Indian government's demand is for Tesla to build a factory in the local area. According to media reports, India's Minister of Transport and Transport, Nitin Gadkari, has made it clear more than once that if Tesla wants to have an Indian market, it must build a factory in the local area and export "Made in India" Tesla to the world.

Tesla is a star project in the field of electric vehicles and technology, especially after the sharp increase in sales in recent years, it has become a "fragrant food" that many local governments are competing for. Although Musk's negotiations with the Indian government still appear to be at an impasse, the latest news shows that several local officials in India have publicly invited Musk to build factories there.

Tough negotiations

Tesla's negotiations with the Indian government have been intermittent for four to five years.

As early as 2016, Musk had hinted at entering the Indian market, but due to high tariffs, Tesla was slow to act. In February 2017, consumers were in a hurry and asked directly on the social networking platform: "Are there any plans to enter the Indian market?" Musk replied at the time: "I hope this summer." ”

The plan at that time was too optimistic. Musk then said in the incessant inquiry from the outside world that tesla vehicles will be sold in India from 2019. But the Indian government has also made demands that Tesla increase its procurement efforts in India and share detailed production plans.

The difficult negotiations between Tesla and the Indian government have intensified: the Indian government wants Tesla to build a factory in the local area, while Tesla wants to sell cars in the Indian market first, and the two are deadlocked, only to wait for the other side to give in. Musk has said that it is possible for Tesla to build a factory in the local area, provided that it is successful in sales first.

Musk's toughness is not unreasonable. From past experience, Tesla enters a new market, often first sells cars in the form of imports, and then considers building a factory after achieving a certain scale in the local market. This is also in line with the usual practice of the automotive industry, earlier a Chinese car company's overseas business leader once told the 21st Century Business Herald reporter that overseas factory construction investment is high, the risk is large, so car companies will first use the import method to "test the water", until the scale is up, the market is familiar, will further evaluate and arrange the construction of factories.

For electric vehicle companies such as Tesla, there is also a "bone feeling" reality in Building Factories in India: India does not have a perfect new energy automobile industry support, even if the factory is built locally, the three-electric (battery, motor, electronic control) system also needs to be imported from other places, and then the vehicle assembly. This will undoubtedly further increase Tesla's costs.

Therefore, Tesla's core demand is to reduce tariffs. Musk has repeatedly and bluntly shouted that India is the highest auto tariff among all major countries, in order to "put pressure" on the Indian government. In July, Tesla also sent a letter to India's Ministry of Transport and Industry in an attempt to reduce import tariffs on electric vehicles from the current 60%-100% to 40%, but without success.

It should be pointed out that although the negotiations are almost deadlocked, Tesla is still quite urgent for the Indian market, which of course may also be a bargaining chip with the government. In January last year, Tesla registered a subsidiary in Bangalore, the capital of Karnataka, Tesla India Automotive Energy Co., Ltd.; in February, local media reported that Tesla's first Indian factory will settle in Karnataka, although Tesla has since entered India to "recruit troops", but at present, the plan to build a factory is still in the game; in December, Tesla has 3 models obtained sales approval in India, before and after a total of 7 models can be sold in India, but the specific listing time is still unknown.

The next market to explode?

Despite several twists and turns, Musk and Tesla are still enthusiastic about the Indian market.

The industry generally believes that India is likely to become the second car market to explode after China. In 2019, Rajeev Chaba, director and general manager of MG Motors India Ltd., told the 21st Century Business Herald that the Indian car market has grown by 6.5% per year in the past five years and will soon develop into one of the world's largest auto markets second only to China and the United States, and it is expected that Indian car sales will exceed 5 million in 2025 and 6 million in 2030.

India is one of the five "BRICS countries" with a large population base, and statistics show that India's population has reached 1.38 billion people in 2020, and its growth is strong. Research by multinational auto companies and institutions has concluded that India will become the most promising emerging car market in the 21st century, just like China.

However, car sales are not directly linked to the size of the population. Overall car sales in India have not increased steadily over the past three years, and the Indian auto market has retreated in the following three years after reaching a record high of 4.4 million units in 2018 due to factors such as the COVID-19 pandemic and macroeconomics. According to Marklines, a global automotive information platform, India's car sales in 2019, 2020 and 2021 were 3.82 million, 2.49 million and 2.75 million respectively – back to the level of about 3 million vehicles.

In addition to the instability in sales, the structure of the Indian automotive market is also very special. The mainstream models in the Indian market, unlike other countries, are affordable models with relatively cheap pricing and relatively small bodies, so Japanese and Korean car companies such as Suzuki, Hyundai, and Kia that take the cost-effective route occupy the mainstream, and the market share of these car companies can reach about 60% or 70%, while the market share of Tata Motors, a local Indian brand, is relatively small.

Chen Zhou, assistant general manager of SAIC India, once said in an interview with the media: "Due to the income level and tax impact, the mainstream automobile consumption in India is concentrated in the A0-level market, the total length of the car does not exceed 4 meters, the price is basically concentrated between 50,000 and 60,000 yuan, and the price of more than 100,000 yuan is a relatively luxurious model." ”

Electric vehicles are even more niche in the Indian market. People familiar with the situation said that India's electric vehicles accounted for less than 0.1% of the overall market. According to the data, in January 2021, when sales have increased significantly, a total of 15,910 electric vehicles were sold in India, and according to this data, the penetration rate of local electric vehicles is only 5.7%, while other months are difficult to reach this level.

Although the Indian government is also focusing on promoting the development of electric vehicles, through a series of policies such as subsidies to promote the electrification of automobiles, India's electric vehicle industry is just getting started, and electric vehicle sales have fallen by 5% in 2020. But the magic of the Indian market is that sales of its two-wheeled electric vehicles increased by 50% that year.

It is not easy for Tesla to enter such a market, and its relatively high pricing means that it can only "fight" in a relatively limited market. However, this is also the breakthrough idea of some car companies, in the field of cost-effective cars, local old players have accumulated a lot of experience, new players take the differentiated route, high-end, luxury models are a breakthrough.

Who will compromise?

In fact, in addition to Tesla, there are not many car companies that have entered the Indian market in the past two years.

In June 2019, MG, a brand of SAIC Passenger Car Company, began selling in the Indian market and put into operation the plant it acquired and remodeled in India. As early as early 2017, on the eve of GM's announcement of its exit from India, SAIC motor acquired its HALOL plant in Baroda, Gujarat, with plans to launch SAIC's own brand products.

Great Wall Motor also sees the Indian market as an important part of its internationalization strategy. In January last year, Great Wall signed an agreement with GM to acquire GM's Tarigon plant in the Indian state of Pune for $1 billion to produce Great Wall Motor's brand products, including Haval' products. Although the acquisition process of the plant has been delayed due to the lack of agreement on local labor relations, Great Wall Motor said that "there has been no change in the market strategy for India." ”

It is worth mentioning that saic and Great Wall have both laid out electric models in the Indian market. Among them, MG has launched zS models in the Indian market, and Great Wall has also warmed up the "cat" series models of its Euler brand.

The traditional luxury brand Mercedes-Benz took the lead in establishing an assembly plant in India, planning to produce an electric version of the sedan EQS locally - Mercedes-Benz has also joined Tesla in calling on the Indian government to reduce import tariffs on electric vehicles, but under the tough attitude of the Indian government, Mercedes-Benz can only compromise helplessly.

In addition, Hyundai motor is preparing to enter the Indian electric vehicle market. Hyundai motor said last month that it plans to invest 620 billion won in research and development funds in India and launch six electric vehicles in the Indian market by 2028. According to media reports, Hyundai Motor has also participated in an incentive tender with local companies in India to invest $2.4 billion to build an electric vehicle battery factory.

Tesla will also become an important player in the Indian market, but it is only a matter of time. An auto industry person analyzed the 21st Century Business Herald reporter that Tesla has been creating momentum for exports to India since last year, and now it is just to see who bows down first from Musk and the Indian government.

"Lowering tariffs is unlikely. Once the tariffs are lowered, it is not only Tesla that benefits, other electric vehicles will also be dumped in the past, and the car companies that have built factories in India are bound to be dissatisfied, and it is not conducive to India's own plan to rely on electric vehicles to 'turn over'. The above-mentioned auto industry insiders believe that the Indian government is very tough in the negotiations, and it is likely that Musk will compromise and build an assembly plant in India.

While Tesla is actively setting up a company in India, the local government of India is also frequently throwing an "olive branch" to Musk. In mid-January, ministers or other dignitaries from Tyrengana, Maharashtra, West Bengal and other places welcomed Musk on social media to build factories there, and although Musk did not say anything, building an assembly plant may become the ultimate "ice-breaking" way.

Editor: Lu Taoran