Five per cent someone: What kind of ride is Tesla likely to have in India

Initially, Elon Musk's Tesla will address only 5-6% of India's light vehicles market. What kind of ride is it likely to have?

If any social media post can convert a buzz into reality, it is what Elon Musk said on X on Thursday.
 

“Looking forward to meeting with Prime Minister @NarendraModi in India!,” the boss of Tesla, Inc, the world’s premier electric carmaker, said on the microblogging platform he owns. News agency Reuters, quoting sources, said Musk would meet Prime Minister Modi in New Delhi on April 22.


 

This has heightened the expectation that Musk could announce Tesla’s investment in a manufacturing plant in India, making it the only country other than China to have manufacturing facilities for two global consumer icons, the other being Apple Inc.
 

The government, after four years of talks that went hot and cold, has responded to Musk’s long-standing request by announcing a new electric vehicle policy that sharply reduces customs duty on import of cars from 70-100 per cent (depending on the import price) to 15 per cent if the value is more than $35,000. This reduction is for five years and linked to the condition that the importing company must invest at least $500 million within three years to build manufacturing facilities in India, and also achieve domestic value addition of 50 per cent in five years. In addition, the import will be capped at 8,000 vehicles a year.
 

Regardless, Musk will know better than to expect a cakewalk in India.

 

Not a free run
 

According to research agency Canalys, Tesla will initially compete in only 5 per cent of the electric car market in India. Its top sellers, Model 3 and Model Y, imported from the United States, will— despite far lower duties — be priced in the range of $40,000 (Rs 33.36 lakh ) to $60,000 (Rs 50.04 lakh). That is the premium end of the EV market.

In size, the $35,000 market in 2023 in India was around 6 per cent of total electric car sales, with more than 5,000 vehicles sold in this category —that despite growing three to four times from the previous year. Whether it will continue to grow at this rate is anyone’s guess.

This market already has global players with vehicles already on India’s roads. Another half a dozen vehicles are expected to enter this segment this year.
 

China’s BYD Auto, which overtook Tesla in the fourth quarter of 2023 to become the largest electric carmaker in the world, is already here to race against Tesla — as it has done in other countries — with its BYDs Atto 3 (Rs 33.99 lakh ) and Seal (Rs 41 lakh). The latter is a direct rival to Tesla Model 3 across the world.
 

Hyundai, whose IONIQ 5 (Rs 46.05 lakh) has sold more than 1,400 units since its launch in January 2023, is upping its electric game in India. There is Volvo’s SUV XC 40, available for Rs 54.95, and the electric version of the Mini Cooper for Rs 53 lakh.  

There are more models for customers to choose from, if they are willing to deplete their bank balance further. German BMW’s iX1 is priced at Rs 66.90 lakh and i4 at Rs 72-77 lakh. Hyundai-owned Kia sells the EV6 for Rs 61-66 lakh, and Volvo’s C40 starts at Rs 62.95 lakh.
 

This premium end of the market, admittedly small, is growing at a fast pace. But the share of all electric cars in total car sales remains small, at 2.2 per cent in 2023. And the bulk of the electric sales is in the range from $7000 to $20,000.

 

Too much noise?
 

Based on January-March 2024 data, 92 per cent of the electric car market registration in India is dominated by three players: Tata Motors, MG Motors, and Mahindra & Mahindra. In 2023, their share was near 90 per cent. Add to this the imminent entry of car market leader Maruti Suzuki, which is bound to cause a shakeup.
 

Most of the volumes currently come from the more affordable range. These include MG Motors’ Comet, whose price was recently reduced to Rs 6.99 lakh, and ZS (Rs 18.98 lakh); Tata’s Tiago (starting from Rs 7.99 lakh), Tigor (from Rs 12.49 lakh), and Nexon (Rs 14.49 lakh); and M&M’s XUV400 (from Rs 15.49 lakh); and Hyundai’s Kona (Rs 25 lakh).
 

“There is too much noise about Tesla. Based on the cars it has, it will compete in the top segment of the market, which is currently a niche segment. Volumes in electric will come from the affordable segment. Even after setting up a manufacturing facility, we do not see Tesla having a big play, until it uses India as an export base,” says a senior executive of a leading electric carmaker.
 

Existing players such as Hyundai and new entrant Vietnam’s Vinfast could also leverage the lower duty structure under the new policy and bring in imported cars at prices that will make the going tough for Tesla. Hyundai, for instance, is investing Rs 4,000 crore to expand capacity at the plant it recently acquired from General Motors. That should make it eligible for lower duties under the new policy. Vinfast is investing in a plant in Tamil Nadu and could also be eligible for lower duties.
 

Tesla, on the other hand, is slowing down after a period of heady growth globally. January-March this year saw its lowest numbers since the third quarter of 2022, as its global sales fell by 8.5 per cent over last year. From January 2023, it reduced prices by 20 per cent and made further reductions. In spite of that, sales have not sped up. And the shiniest vehicle in its lineup is a pickup truck that has been launched only in the US.      
 

Of course, Musk has a way of bouncing back with a vengeance. Many believe he could price his imported models aggressively just to seed the market in India, helped by the fall in battery prices. But the big ace up his sleeve could be a compact electric car priced at Rs 20 lakh or so.
 

Musk has made it clear that the compact car will be made for markets in Asia and Latin America, and many say he has been looking at India as a production base. Musk has denied the rumours that this project has been shelved, and expects it to be moving by late 2025.  
 

The game could change if the government came out with a production-linked incentive scheme 2.0 for new entrants in the EV space (such as Tesla). The PLI for mobile phones has made India a significant base for Apple’s iPhones. A PLI 2.0 to support advanced chemistry cell batteries is also in the works.
 

Most carmakers say the penetration of electric cars in India would reach 15 per cent by 2030, which translates into a substantial volume of 1 million a year. With per capita incomes going up, theRs 20 lakh-and-above market is expected to expand, putting Tesla in a good place.
 

But then, it will not be alone there.