Why is Tesla so confused about Indian market? Challenges and opportunities

After putting an end to its India debut plans in May 2022, Tesla is planning to set up a factory in the country to set up its business in India, a report published in Reuters said. Tesla dropped its India plans after its request to reduce import tax on cars was refused by the government.

India wanted Tesla to build its vehicles locally. Tesla, on the other hand, wanted to test the waters first with imported cars. However, the discussions did not reach a conclusion and the talks came to an end.

Going by the latest developments, Tesla did not bring up the point of lowering import taxes, instead, it proposed the idea of setting up a new factory in India. There is little clarity about the details of the investments, Reuters report said.

If this were to come true, it will be consistent with the government's plan to attract manufacturing facilities to India as a part of the "Make in Inda" campaign. This assumes significance as companies are looking for ways to diversify their manufacturing and supply chains beyond China.

Top Tesla officials are visiting India this week to speak with government officials and discuss local sourcing of parts and other issues, Reuters said.

What was Tesla planning earlier?

Previously, Tesla was planning to bring completely built units (CBUs) of their cars to the Indian market. However, India imposes heavy duties on such imports which, in some cases, can go as high as the value of the car itself. In other words, the duties can double the car's price.

Doing this would have made Tesla's expensive cars even costlier, taking them away from Indian buyers.

What is the challenge for Tesla?

The primary challenge for Tesla is the segment in which it sells its cars. Focused on prosperous markets, Tesla's entry-level EV, Model 3 costs upwards of $40,000 (more than Rs 33 lakh) in America.

While Tesla has found buyers in developed markets like Europe and the USA, a developing car market like India's that still focuses on budget cars may not deliver Tesla the big numbers it may expect. The reason why Tesla is moving with caution.

Charging infrastructure is another part of the puzzle that Tesla needs to solve. While the Indian government is galloping towards making an EV-friendly ecosystem with significant tax breaks for electric cars, the country still has a long way to go in developing a charging infrastructure that can kill range anxiety.

While the launches by Indian brands like the Tata Nexon EV, Tiago EV, and XUV 400 are encouraging, most customers still consider an EV as their second vehicle.