Tesla in India: How it will impact Indian car manufacturers ?

From being a perfect advertisement for India’s electric vehicle (EV) manufacturing ambitions, to helping the country become a green economy, Tesla’s entry could prove to be a game changer in the Indian automobile space.


Tesla's Entry in Indian Market

Early this year, Tesla’s CEO tweeted that his electric vehicle and clean energy company will enter the Indian market “as promised”. This confirmation came after the company registered its office in Bengaluru as Tesla India Motors and Energy.

Elon Musk, the maverick billionaire, confirmed that Tesla will start with sales and then look at setting up assembly factories, based on the demand. While the automobile giant hopes to begin selling its Model 3 sedan in the country this year, high import duties are coming in the way of the transactions. 

Elon Musk, CEO of Tesla. Image credit: Pixabay

High import duties

India’s helfty import duties have almost doubled the price of the car. This means that it will be difficult for Tesla to manufacture it within the nation. On the other hand, the China-made Tesla Model 3 sedan, which is touted to be priced at $40,960 is available for Rs 30 lakh. 

Now, India levies an import duty of 60 percent for cars priced below $40,000 and 100 percent for those above $40,000. This will rake up the price of the car by Rs 55 to 60 lakh. The electric vehicle company has urged the Prime Minister’s Office (PMO) to slash the import tax so that the car can be offered at competitive prices to Indian consumers. However, if the company uses the 2,500 units only for importing, there could be a major cut in the total cost, which would further make it attractive for people.

Several luxury automakers in the past have lobbied the central government to lower the import duties, but have had little to no success because of strong opposition from rival domestic companies.

Boost to the Indian EV sector

“The electric vehicle market is only in its embryonic stages and the jury is still out on whether it will ever fully evolve in India,” said Ammar Master, Senior Manager at LMC Automotive, in his blog. 

Tesla is expected to give the Indian EV space a boost and result in an increase in demand for batteries. The company’s entry into India is also a great advertisement for the country’s ambition to be a global manufacturing hub for electric cars. 

"A Tesla car is an image builder. The company is not going to come to India for volumes. Rich people will buy it and flaunt it - it will be an eye-turner. The strategy, perhaps, is not to get volumes, but to get presence,” Sohinder Gill, Director General of the electric vehicle makers’ industry body, Society of Manufacturers of Electric Vehicles (SMEV) had told The Hindu BusinessLine.

One of the world’s fastest growing brands, Tesla is sure to play an influential role in encouraging Indian consumers to opt for electric vehicles and may help douse concerns around electric mobility. This will also make way for more investment in the sector and help engineering and manufacturing wings in the sector garner funds to boost innovation. 

Image credit: Craig Adderley, Pexels

"For upcoming players like Ather Energy, this indicates that the overall supply chain will improve and the investments in the EV industry will continue to increase," Tarun Mehta, co-founder and CEO of electric scooter manufacturing start-up Ather Energy, told The Hindu BusinessLine.

While Tesla is yet to iron out its import duty qualms, the central government is continuing to put pressure on the company to manufacture in India. 

"The entry of Tesla will not impact the auto industry in the near to medium-term. Unlike mobiles that cost below Rs 1 lakh, Tesla’s popular Model 3 will cost more than Rs 50 lakh in the country as and when it is launched," Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.

Transition to green economy

India has pledged to reduce its carbon footprint by 33 to 35 percent by 2030 as part of the Paris climate agreement. According to a NITI Ayog report, India's transport sector is the biggest user of oil and second largest emitter of CO2 in the globe. Out of the total vehicle sales in India, electric vehicles and low carbon modes of transport constitute less than 1 percent of the share. 

Among all the available clean and low carbon mobility technologies, electric and CNG vehicles are the most preferred in India. The fiscal incentives being offered for electric vehicles as well as the low prices of CNG when compared to petrol and diesel could be the reasons for this trend. 

EVs have emerged as a promising alternative that could help in mitigating the negative environmental impacts caused by conventional vehicles. As of July 2020, the total registered EVs in India were 5,18,110 according to the same report. 

The four-wheeler EV segment contributes to only 3 percent of the country’s overall EV population owing to its limited models. Tesla's entry could further this competition, drive innovation and enable India to meet its climate goal of slashing carbon emissions. 


Edited by Roshni Shroff


Some resources to help you understand more about Tesla: 

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