Musk and the Indian government’s “Tesla Gamble”

The two parties seem to have the same goals. Why is it still difficult for Tesla to enter the Indian market?

Recently, Musk made it clear on Twitter that Tesla hopes to enter India to build factories, but the premise is that the Indian government can reduce or exempt import tariffs before then so that Tesla can sell in India.

As early as 2016, Musk had plans to lead Tesla into the Indian market, but due to high tariffs, Tesla is still trying.

In fact, the Indian government also welcomes Tesla’s establishment of a plant in India. In October last year, Indian officials took the initiative to invite Tesla to build an Indian super factory in Bangalore.

The two parties seem to have the same goals. Why is it still difficult for Tesla to enter the Indian market?

1 Tariff wall

On July 23, a netizen asked Musk to sell Tesla in India. In this regard, Musk replied somewhat helplessly:

“We want to do this, but India has the highest import tax in the world. In addition, (the Indian government) treats clean energy vehicles the same as fuel vehicles, which seems to be contrary to India’s climate goals.”

Musk and the Indian government's "Tesla Gamble"

According to foreign media reports, Musk is currently communicating with the Indian Ministry of Transport and the Ministry of Industry, hoping that the latter will reduce India’s 60%-100% import tariffs to 40% so that Tesla can enter the Indian market.

Musk has said that if Tesla performs better in the Indian market, then Tesla is likely to build a factory in India.

According to Tesla’s various actions in India, it may be only the last step before it enters the Indian market at this time.

In January of this year, at the invitation of the Indian government, Tesla established “Tesla India Automotive and Energy Private Limited” in Bangalore, India, and it was reported that two top ports in India were seeking Tesla to build factories.

A previous reply from Musk also revealed that Musk seems to have a good chance of Tesla entering the Indian market this year.

Musk and the Indian government's "Tesla Gamble"

However, even if Tesla is fully prepared, India’s high import tariffs are like a high wall blocking Tesla’s entry into India.

2 The Indian government in the game

The reason India is actively inviting Tesla to invest in the construction of a factory may be that Tesla is one of the key projects in “Made in India.”

Specifically, the Indian government hopes that the construction of Tesla’s factory will drive the development of India’s electric vehicle industry.

“If the deal with Tesla is reached, this potential Indian Gigafactory will produce both batteries and electric cars.”

When the Indian government issued an invitation to Tesla to build a factory, Gaurav Gupta, Chief Secretary of the Ministry of Industry and Commerce of Karnataka, India, revealed.

In fact, India has been actively promoting the electrification process in the past few years.

As early as April 2015, India had proposed the “Electric Mobility National Plan” (FAME) to promote the development of new energy vehicle technology, build pilot projects and the construction of supporting infrastructure such as charging piles.

In the following years, India not only actively introduced policies related to electric vehicles, but also frequently introduced foreign companies in an attempt to build a complete automotive industry chain.

India once invited companies from all over the world to bid for a lithium battery factory project with an investment of approximately RMB 49.48 billion, which attracted the attention of lithium battery R&D and manufacturing companies including CATL.

In addition, India is also actively introducing auto companies such as Volvo and BYD.

Under this circumstance, if India successfully introduces the Tesla factory, it may be able to drive more upstream and downstream companies in the industry to join with its strong appeal. Just like the impact of the Shanghai Tesla factory, help Bangalore build a complete electric vehicle industry chain.

For the Indian government, this can be said to serve multiple purposes.

However, the Indian government is currently like a gambler trapped in a deadlock and must choose between dilemmas:

On the one hand, lowering import tariffs for Tesla will impact the development of other industries in India, and the Indian government will also reduce a significant amount of revenue. At the same time, once Tesla’s sales in the Indian market fall short of Musk’s expectations, the construction of the factory will fail, and it will not be easy for the Indian government to raise import tariffs again.

On the other hand, if Musk is satisfied with Tesla’s sales in the Indian market and invests in building factories, in addition to driving the development of India’s electric vehicle industry chain, it will also boost its declining economy and contribute to increasing unemployment. Bring new job opportunities.

The pros and cons behind a factory are too complicated, which may be one of the reasons why the Indian government is still hesitating.

3 Difficulties in electrification

Although the Indian government has vigorously promoted the development of electric vehicles in the past few years, its effectiveness is not optimistic. And this may be one of the reasons why the Indian government expects the Tesla factory to come.

The first point that restricts the development of electric vehicles in India is the difficulty of battery manufacturing.

At present, India is gradually promoting the development of the electric vehicle industry chain, first of all to promote the independent production of power batteries.

In terms of raw materials, India lacks the necessary lithium and cobalt ore for manufacturing lithium batteries, so India is completely dependent on imports.

In terms of technology, since the new energy vehicle market has just started, there is no local plant in India capable of producing power batteries, so it can only attract foreign investment to build factories.

With the increase in domestic demand for electric vehicles, India can only import a large amount of lithium batteries. According to the 2018-2019 fiscal year report of the Indian Ministry of Commerce, India’s lithium-ion battery imports reached US$1.23 billion, an increase of 2.2 times and 3 times respectively compared with the 2016-2017 fiscal year.

There are fewer batteries and fewer charging piles.

The Bloomberg New Energy Finance report pointed out in 2017 that India had only 350 charging points nationwide, while China had approximately 215,000 charging points during the same period.

In 2020, the Indian state-owned company India Energy Efficiency Services Corporation announced that it will build 10,000 charging stations in the next two years.

However, according to a report by the Indian Energy Storage Alliance (IESA), India’s total sales of electric vehicles in 2018 reached 365,920, and with the support of the government, it will increase by 36% annually by 2026.

At the same time, the report also predicts that by 2026, the total sales of charging piles in India will increase to 50,000 units.

The speed of the Indian government’s construction of charging stations is far from being able to meet the demand for use, and the serious shortage of charging piles will cause the use of electric vehicles to be completely confined to the urban area, greatly restricting the development of electric vehicles.

In addition, the high price of electric vehicles is also unaffordable for ordinary people in India, and the lack of a larger market also hinders the development of electric vehicles to a certain extent.

According to statistics from the World Bank, the per capita annual income of Indian nationals in 2019 was US$2,120, while that of China was US$10,410.

If the Tesla Model 3 with a starting price of US$40,000 and made in China is exported to India, the price will double to US$80,000 due to various factors. About 75% of all cars sold in India are priced at US$10,000 and below.

(On CarDekho, an Indian car trading website, a Tesla Model 3 costs about $82,253.)
(On CarDekho, an Indian car trading website, a Tesla Model 3 costs about $82,253.)

Finally, India’s complex road conditions also affect the development of electric vehicles.

Limited by uneven roads and traffic jams, electric two-wheelers are the sales star among electric vehicles in India.

According to data from the Association of Electric Vehicle Manufacturers (SMEV), an industry body in India, in the fiscal year 2019-2020, the sales of electric vehicles in India increased by 20% to approximately 156,000 units. Among them, the sales of electric two-wheelers were 152,000, while the sales of electric cars and electric buses were 3,400 and 600, respectively.

Despite many obstacles, India still has the advantage of developing electric vehicles.

First of all, India’s huge market potential provides great development opportunities for the development of electric vehicles.

A study by CEEW Energy Finance Center shows that India’s electric vehicle market is still growing, and the value of the electric vehicle in the next ten years may be close to US$206 billion.

Relying on the stable economic growth situation and the dividends with a large young population, India is likely to become the world’s largest growth market after China in the future.

Secondly, relatively cheap labor has attracted many technology companies such as Apple, Lenovo, and Xiaomi to open factories in India.

The prospects for the development of electric vehicles in India are indeed attractive, but the current lack of various supporting measures still discourages many car companies from manufacturing electric vehicles in the local area.

On the whole, India still has a long way to go to build an electric car factory.

4 summary

In this interest entanglement, there are many uncertainties.

It is this fact that the Tesla factory has not made any progress even after half a year after a slight increase.

The Indian government, which is unwilling to make concessions, may only value the Tesla Gigafactory and its impact, and does not care whether Tesla can enter India for sales; for Musk, it may not matter whether or not to build a factory in India. . With the layout of the three Tesla Gigafactories, further occupying the new consumer market is the top priority.

It seems that the goals are the same, but in fact, the two sides have already seemed to be separated.

Around this bet on the Tesla factory, the temptation between the Indian government and Musk seems to continue for a long time.

Posted by:CoinYuppie,Reprinted with attribution to:
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