Tesla (TSLA) Moves Closer to Selling Its Cars in India - Investopedia

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Electric car maker Tesla, Inc. (TSLA) might say Namaste to India soon. The country's Ministry of Road Transport and Highways has tested four Tesla models and certified them to be roadworthy. "The tests ensure the vehicle matches the requirements of the Indian market in terms of emission and safety and road worthiness," the ministry stated on its website. According to a Tesla fan twitter account, the models tested are probably variants of Model 3 and Model Y—the company's economy cars.

Tesla completed its registration formalities in India this past January. Tesla Motors India and Energy Private Limited is an IT and R&D office based in Bangalore.

Key Takeaways

• Four Tesla models have been declared roadworthy in India by the country's Ministry of Road Transport and Highways.
• India represents a challenge and an opportunity for Tesla. It has potential, but the country lacks infrastructure and appropriate policy and financing mechanisms for electric vehicle adoption.
• Tesla CEO Elon Musk has indicated that the company will "quite likely" set up a manufacturing facility in India.

A Big but Challenging Market for Electric Vehicles

India represents both an opportunity and a challenge for Tesla. With the world's second biggest population, the country was the fifth biggest market for car sales in the world in 2020. The forecast for electric vehicles (EVs) in the country is bright. According to research, India's EV market will grow at an estimated rate of 44% annually and will be worth $47 billion by 2026. Just a handful of local manufacturers make EVs in India currently. They do not have Tesla's brand recognition and expertise in making such vehicles.

Despite these advantages and its head start in the industry, Tesla will not have an easy road in India. Sales for passenger vehicles are stuck in second gear, behind two-wheeler vehicles, in India. According to consultancy firm KPMG, personally owned electric vehicles will constitute between 10% to 20% of the overall market, while commercial electric vehicles will account for 20% to 30% of the overall market share.

Sticker prices are another problem. Indian car manufacturers pioneered the low-cost car and dominate car sales numbers. Tesla will find it difficult to hawk a premium car that costs upwards of $70,000 in a country with a per capita income of $1,947.

The current market for EVs in the country is miniscule and amounts to just 1% of total automobile sales. Several factors have contributed to dismal sale numbers for electric vehicles. The absence of sufficient electric charging infrastructure is one. Availability of financing options for EV manufacturers is another.

Steep excise duties on big cars and prohibitive import duties of as much as 100% for automobiles priced above $40,000 further make the playing field difficult for Tesla. Tesla's cheapest car, Model 3, costs $39,900 in the United States. Its price will almost double in India with associated import duties, making it out of reach for an overwhelming majority of Indians and severely curtailing the market for Tesla's vehicles.

Imports, Then Manufacturing

In the past, Tesla CEO Elon Musk has said that the company is "quite likely" to set up a manufacturing base in India. However, as it did in China, the company may begin its foray into the South Asian country's market with imports. Musk has already complained about India's import duties on Twitter and is arguing for a separate duty regime for electric vehicles.

Meanwhile, the Indian government has promised to make changes to its regulations and duty structures if Tesla works with local suppliers. The country's transportation minister Nitin Gadkari told Reuters in March that the government is prepared to offer concessions. "The government will make sure the production costs for Tesla will be the lowest when compared with the world, even China, when they start manufacturing cars in India. We will assure that," he said.

Tesla's Shanghai Gigafactory began operations in late 2019 and is credited with lowering the overall production costs for Tesla vehicles in China.

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