A few days ago, according to Reuters, Tesla CEO Elon Musk said that he would visit India to meet with Indian Prime Minister Modi. According to people familiar with the matter, Musk will meet with Modi in New Delhi, the capital of India, in late April, when he is expected to announce Tesla's investment and construction of a factory in India.
After the Indian government finally agreed to lower import tariffs on electric vehicles, Tesla's plan to build a factory in India has also pressed the "fast forward button". Previously, a number of foreign media reported that Tesla plans to send a team to India in late April to select a site for a factory that plans to invest $2 billion ~ $3 billion. It has been revealed that the current locations under consideration for Tesla include Tamil Nadu in southern India, Maharashtra and Gujarat in the west. These regions all have a relatively complete automobile industry chain, and they all have ports, which are convenient for exports. Separately, Reuters, citing sources familiar with the matter, said that Tesla has started production of right-hand drive cars at its Berlin factory in Germany, which will be exported to India later this year.
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Tariff cuts in exchange for local investment
Tesla has been focusing on the Indian market for years. Back in 2016, Musk said Tesla was interested in entering the Indian market. However, Musk's plan is to export cars to the Indian market first, and then consider whether to build a factory after seeing the scale of sales, so he asks the Indian government to reduce import tariffs. Since then, Musk has complained more than once about India's high tariffs, calling them a "roadblock".
It is reported that India has been imposing high tariffs on imported cars, and in April last year, it also raised the import tax rate, and cars priced below 3 million rupees (about 36,000 US dollars) need to pay 70% import duties, and the proportion of imported cars above 3 million rupees is even 100%. Tesla's main models, the Model 3 and Model Y, are both required to pay 100% tariffs, which is obviously unacceptable to Musk. In addition, multinational automakers such as Volkswagen Group, Hyundai Motor, and Mercedes-Benz have also previously called on India to reduce import tariffs on electric vehicles. However, local Indian car companies represented by Tata Motors have expressed opposition, believing that the tax cut is not conducive to the development of India's local manufacturing industry.
In order to promote the development of the local electric vehicle industry, the Indian government has repeatedly thrown an olive branch to invite Tesla to build a factory in India, and Tesla has made reducing tariffs a prerequisite for building a factory in India. During the years of see-saw between the two sides, Tesla's factories in Shanghai, Berlin, Germany, Texas, and Nuevo Leon, Mexico, have been put into production or finalized.
This made the Indian government unable to sit still any longer, and its attitude on the tariff issue began to loosen. In June last year, during Indian Prime Minister Modi's visit to the United States, he also met with Musk. Musk revealed at the time that Modi was pushing Tesla to make a major investment in India, saying that this was also "something that Tesla intends to do" and just need to find the right moment. In November last year, more precise news came out that India was considering a five-year tax cut on the import of electric vehicles in order to attract multinational automakers such as Tesla to sell in India and eventually produce cars in India. In other words, India allows overseas automakers to import EVs at preferential rates, but only if they commit to producing EVs in India.
On March 15 this year, the Indian government announced that it would provide tariff incentives for electric vehicle manufacturers who invest at least 41.5 billion rupees (about 500 million US dollars) and start production in India within three years. According to the rules, any imported electric vehicle priced at about $35,000 or more will only have to pay a 15% tariff for five years. However, each car company that has committed to investing in India can only import up to 8,000 electric vehicles per year at preferential tax rates, for a total of 40,000 electric vehicles in five years. India's Minister of Commerce and Industry, Piyush Goyal, said: "We invite global businesses to come to India and believe that India will become a global EV manufacturing hub. In this regard, a number of foreign media pointed out that this move is mainly to attract Tesla to build a factory in India.
02
Promote the construction of ecosystems
For the Modi government, which aims to develop local manufacturing, especially the electric vehicle industry, Tesla's construction of a factory in India will be an important political achievement. It is reported that the investment in Tesla's Indian factory will be as high as 2 billion ~ 3 billion US dollars. In addition, according to people familiar with the matter, Tesla will also invest in the local charging network, which is not included in the special fund for building the factory. Building Tesla's own network of Superchargers is also a practice for the company in every market.
Tesla's investment plans in India also include sourcing more parts locally. "Tesla has already started sourcing parts from India and is considering reducing parts purchases from China to make India a bigger sourcing hub. People familiar with the matter said. In addition, Tesla's India factory is likely to follow the model of the Gigafactory in California, Shanghai, and Berlin, that is, to build battery factories in India and arrange suppliers to establish industrial chains nearby. This means that, in addition to Tesla's own investment, Tesla's India factory will also bring a large number of suppliers into the local area, which is expected to drive billions of dollars in investment.
This is the main reason why the Indian government values Tesla so much and has agreed to lower import duties after several years of tug-of-war with Tesla. "For India, Tesla is the most attractive EV manufacturer because it can drive a large number of investments and help cultivate the local EV industry chain. "And, the Indian government has introduced more and more incentives to develop electric vehicles, which is a great opportunity for Tesla to enter India." ”
Considering the economic strength of the majority of consumers in India, Tesla intends to produce affordable electric vehicles in India. Tesla executives told Indian government officials that the company was considering producing affordable small electric cars in India, the Times of India reported in March. According to previous news, Tesla's Indian factory may have a planned production capacity of up to 500,000 units, producing an electric model with a starting price of 2 million rupees (about 24,000 US dollars).
Previously, it was reported that Tesla plans to produce an affordable electric model called Tesla Model 2 priced at $25,000, which is highly anticipated by the market. Not long ago, the news of the termination of the development of the Model 2 attracted widespread attention, which Musk and Tesla's chief designer Franz Hoyson both denied. At least for now, the Model 2 project is still in progress, and production in India may also be possible in the future.
03
Find new growth markets
Tesla's move into India comes amid slowing demand for electric vehicles in its main markets, Europe and the United States, as well as intensifying competition in China, which also led to Tesla's deliveries falling short of expectations in the first quarter of this year. According to the data, in January ~ March this year, Tesla's global deliveries fell by 8.5% year-on-year and more than 20% month-on-month to about 386,800 vehicles, far lower than the average analyst expectation of 449,000 vehicles. In response to the decline in sales, Tesla pointed out that in the first quarter of this year, the production of the new version of the Model 3 at the Fremont factory in California, the United States, was in the ramp-up stage, the logistics were blocked due to the Red Sea crisis, and the factory shutdown caused by the arson of the Berlin Gigafactory in Germany, all of which affected its production and delivery.
However, the outside world does not seem to agree with the reasons given by Tesla. Emmanuel Rosner, an analyst at Deutsche Bank, pointed out that Tesla produced 433,000 vehicles in the first quarter, and the gap between production and sales reached nearly 50,000 units. This means that, in addition to the known production bottlenecks, Tesla may also have serious demand issues. In fact, due to the capital market's concern that Tesla is losing growth momentum, its stock price has fallen by more than 30% since the beginning of this year, and its market value has evaporated by more than $250 billion.
Currently, the United States, China, and Europe are Tesla's main markets, and as Tesla's demand growth in these markets slows, it is looking for new pillars of growth, and India is seen as a "potential stock". As the world's most populous country, India surpassed Japan in 2022 to become the world's third largest auto market for the first time, and its broad market prospects make it difficult for a number of car companies, including Tesla, SAIC MG, Volkswagen, Hyundai, Kia and other car companies have launched or plan to launch electric models, and the Indian government has not only provided millions of dollars in subsidies to automakers in recent years to encourage them to produce electric vehicles and batteries, but also to promote Indian consumers to buy electric vehicles. In 2019, the GST rate for electric vehicles in India was reduced from 12% to 5%, while the rates for hybrid and petrol vehicles were as high as 43% and 48%.
At present, India's transition to electric vehicles is significantly lagging behind countries such as China and the United States due to factors such as high upfront costs and lack of charging infrastructure, but this also means that the future potential is huge. According to Counterpoint Research & Consulting, passenger car sales in India will grow 10% year-on-year in 2023, with electric vehicle sales almost doubling to account for 2% of total passenger car sales. Among them, Indian local car companies Tata Motors and Mahindra Mahindra, as well as Chinese car companies SAIC MG and BYD performed well. The agency expects India's EV sales to increase by 66% year-on-year in 2024, with a market share of 4%.
Of course, Tesla's entry into the Indian market is not a "smooth move". The most problematic issue is India's electricity supply, which is a major challenge for the production and use of electric vehicles. Second, Tesla needs to face problems in terms of the quality of India's labor force and industrial support. In addition, India's business environment is also a severe test for foreign companies, from General Motors, Ford, Nissan to Honda, many multinational car companies have not had a pleasant investment experience in India, let alone Chinese car companies that have encountered great resistance.
In order to establish a foothold in India, Tesla needs to be mentally prepared to deal with complex situations. Of course, if it succeeds, the rewards will be huge.
Text: Zhang Dongmei Editor: Wan Ying Layout: Wang Kun
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