The Tesla factor: Its India entry as a disruptor may have limited impact

After abortive attempts in 2022 and 2024, Tesla could finally be making its debut on Indian roads in the second quarter this year. An unusual one-to-one meeting between Tesla chief Elon Musk and Prime Minister Narendra Modi during the latter’s recent visit to Washington appears to have galvanised the world’s second-largest electric-car manufacturer to take a definitive gamble on India. In the bigger picture, the negotiations around Tesla can be seen as part of the Indian government’s agenda of re-examining the tariff regime, partly in response to American President Donald Trump’s threats of imposing reciprocal high tariffs on Indian exports to the United States. But a shift was already evident last year, with India introducing a policy permitting electric-vehicle makers to import up to 40,000 completely built units (CBUs) at a reduced Customs duty of 15 per cent (from 100 per cent previously) for five years with a maximum import limit of 8,000 vehicles per year. The caveats here are that the manufacturer must invest $500 million, including setting up a factory; 50 per cent of this investment has to be made within three years. With Tesla reportedly moving ahead to scout for assembly locations and hiring retail workers, the question is whether this development would disrupt the Indian electric-car industry in a significant way.

 

As yet, this looks unlikely for a number of reasons. The first is the displeasure expressed by Mr Trump, to whom Mr Musk reports in his capacity as head of the Department of Government Efficiency, at the prospect of Tesla investing in a factory in India rather than in the US. The second factor is the demand paradigms in India. The electric-car market is minuscule, accounting for 2.3 per cent of the market last year. Though Tesla’s models undoubtedly have a unique badge value that would attract a certain kind of clientele, it is doubtful if such buyers would create the critical mass the car manufacturer would need to set up a full-fledged production unit in India. At the lower duty rate, the price of Tesla’s CBUs, which will reportedly be imported from its Berlin Gigafactory, will be steep.

 

Tesla’s prices are expected to range from ₹50 lakh for the Tesla Cybertruck to ₹2 crore for the Tesla Model X (a five-seater sport utility vehicle). Its best-selling model globally, the Model Y, is estimated to cost ₹70 lakh. This keeps Tesla firmly at the upper end of the average price range of electric vehicles in India at ₹6 lakh to ₹3 crore. The most expensive electric vehicle in India is the Rolls-Royce Spectre at ₹7.5-7.8 crore but the price of most luxury electric cars range between ₹1.65 crore and ₹3 crore. With the exception of Mercedes, most luxury electric-car makers saw stagnant or negative growth in India last year. With Tesla’s sales falling globally, too, its India bet will be tough. The possible game changer could lie in the fact that Tesla reportedly sources components from India worth $1 billion a year. Investing in a factory with the objective of offering a car for ₹21 lakh could well entail significant value addition to the Indian supply chain. As with early liberalisation in the country’s car industry, this could be the bigger game changer India is looking for.