Why Is Tesla In India Still WIP? Elon Musk's Comment Raises Questions

Elon Musk's meeting with Prime Minister Narendra Modi in the US today and his assurance that Tesla Motors will set up shop in India "as soon as humanly possible" has revived the big question: when will that happen?

What Did Musk Say?

Stressing that he is a "fan" of Prime Minister Modi, the Tesla CEO recounted his the Prime Minister's visit to the Tesla factory in California in 2015. "We have known each other for a while. I am incredibly excited about the future of India. I think India has more promise than any large country in the world."

On a specific query on the timeline of Tesla coming to India, he said, "I am confident Tesla will be in India and will do so as soon as humanly possible. Prime Minister Modi really cares about India because he is pushing us to make significant investment in India, which is something that we tend to do. We just have to figure out the right timing."

What Were The Roadblocks?

Tesla Motors has been planning to enter the Indian market since 2019, but the high import duty on electric vehicles has been the big hurdle. According to Indian tax slabs, an electric vehicle that costs under $40,000 attracts a 60 per cent import tax. The tax goes up to 100 per cent once the price crosses the $40,000 mark.

The cheapest Tesla costs around $45,000 -- around Rs 37 lakh. The US automaker argues that a 100 per cent import duty will make their cars too expensive and take away their key selling point -- affordability.

In a reply to a Twitter query, Musk said two years back that it wants to launch Tesla in India, but "import duties are the highest in the world by far of any large country!"

The Centre's Stand

The Narendra Modi government, which has been pushing its call for Make In India, has suggested that Tesla can manufacture the vehicles in India. Earlier this year, Road Transport and Highways Minister Nitin Gadkari said that Tesla is welcome to set up a manufacturing plant in India. "The carmaker is eligible for subsidies and discounts, however, that is only if the cars are made in India, not built in China and brought here," the minister said while addressing a Financial Express CFO awards.

Tesla, it seems, wants to test the waters by importing vehicles before setting up a factory here. The automaker has received requests from several state governments for setting up a factory, with most of them offering subsidies and other exemptions.

Tesla's insistence on an import duty cut and centre's push for Make In India has held up the automaker's India entry.

Are Things Moving?

Last month, Musk said Tesla would probably pick a location for a new factory by the end of this year, news agency Reuters reported. When The Wall Street Journal asked him if India was interesting, he replied, "Absolutely". The remarks came days after a Tesla team came to Delhi and held long discussions with officials.

Soon after the meeting, Union Minister Rajeev Chandrashekar said Tesla is "very seriously looking at India as a production and innovation base". "We have signalled to them that the government of India is working together (and) will certainly make whatever ambitions they have or investment objective they have in India a success," Mr Chandrasekhar told Reuters.

Why Tesla Needs To Act Soon

Musk needs to set up a manufacturing facility at the earliest to meet Tesla's target to sell 20 million electric vehicles annually 2030 onwards. The target is a steep jump from its current production of 1.3 vehicles a year, necessitating a big ramp-up in production facilities. Meanwhile, competitors such as Mercedes, BMW and Volkswagen are catching up in the Electric Vehicle race.

Tesla now has six manufacturing plants, four of them in the US. It has two Gigafactories -- which can manufacture cars and batteries - in Shanghai and Berlin. The company has identified Mexico for another Gigafactory.

Tesla's Demand, Challenges In India

Tesla vehicles stand out for their aerodynamics, minimalist designs and high-end features such as Autopilot that enables a car to steer, accelerate and break automatically within its lane.

In India, the electric vehicle sector is rapidly growing, thanks to the government's clean energy push. Auto sales in this sector is currently dominated by Tata Motors, which is pushing out affordable electric vehicles at several price points below Rs 20 lakh.

In a price-sensitive market such as India, Tesla's prospects would depend on how competitively it can price its cars while giving its customers a slice of its state-of-the-art experience.