If you are a car enthusiast, you would know Tesla Inc, The world's most valuable auto manufacturer in the USA, specialises in the manufacture of electric vehicles. It also has a range of other products involving clean energy. The company has captured around a quarter of the electric auto market and around 16% of the hybrid market worldwide.
India is among the world's largest automobile markets, being the fifth in size, and, naturally, Tesla would target this market for sales of its electric cars. If you had eagerly awaited its entry, you would have smiled when Tesla opened its office on January 8, 2021, in Bengaluru.
Tesla's CEO Elon Musk hoped to import electric cars from the company's massive factory in Shanghai, China. The Gigafactory started production in October 2019 at a rate of half a million units and expects to enhance its capacity soon to manufacture nearly a million electric vehicles. Reports now suggest that Tesla has reassigned its India staff to other countries and has shut its office in Bengaluru.
What happened with Tesla and the Indian government?
Atmanirbhar Bharat happened. The approach of the current Indian government has been to lay stress on self-reliance in all fields and technologies. So the cat-and-mouse game began between the government and Tesla.
Around July 2021, Elon Musk assured the central government that Tesla was ready to assemble and produce EV cars in India. But there was a caveat. Musk wanted a license to import his cars, sell them and service them first. Only then would he start manufacturing. But what do the rules say?
- Car importers in India have to pay a 100% import duty on cars whose Cost, Insurance and Freight (CIF) value exceeds $40,000.
- Where the CIF value is less than $40,000, the import duty is 60%. In addition, there is a social welfare surcharge of 10% on EV cars in India.
- In effect, you would have to pay approximately Rs.80,00,000 for a car valued at around Rs.30-35 lakhs.
While this may seem unfair to you, if you were a Tesla fanboy, this makes sense and resonates with the central government's focus on local jobs.
If you look at it from Tesla's point of view, this will catapult their cars into direct competition with luxury cars such as Mercedes and Jaguar. You would not be able to convince an Indian buyer to forego such status symbols for a Tesla EV(Electric Vehicle). In any case, the sales would not touch any significant number.
Many ministers in India's government have repeatedly reiterated their concerns for the past year and a half. They want Tesla to start manufacturing in India and provide jobs to locals. You, too, wouldn't want a situation where the jobs are in China, and the market is in India. That wouldn't be fair to anyone but Tesla. There are enough prominent players in India like the Tatas and Mahindra spending millions on research. They have already released a few electric vehicles and hope to capture markets beyond India.
But Elon Musk insists that things should be the other way round. He says Tesla would not open a manufacturing facility in any market without first being allowed to sell his cars and service them. He wants the government to withdraw its 10% surcharge and cut down on the import duty. Manoj Khurana, Tesla's first Indian employee, had lobbied with the government and claimed they had agreed to reduce import duty to 60 % from 100%. On the other hand, the Modi government insisted that Tesla commits to sourcing $500 million of auto components locally. If Elon Musk could give this commitment, the government said it would bring down the import duty.
Will Tesla make it in India?
Make your own judgement -
- India is a fledgling market for EVs, and you can easily see that the country will not buy enough cars to provide economy of scale. Tesla would have to invest billions of dollars, only to find that they could sell only a few hundred units every year.
- If you suggest making India an export hub for EVs, you should recall that Tesla has only recently opened their mega factory in China. And India can never hope to match the supply-chain capabilities of China, at least not soon.
- Tesla could build a supercharger network here, you might argue. Again, the investment would not significantly return to India's current infrastructure.
You should also be aware that Reliance Industries recently acquired a British battery manufacturing company. This company, Faradion, makes sodium-ion cells, in contrast to the lithium-ion cells that Tesla uses for its vehicles. - The extra mass of these batteries is easily offset by their cost, which is a fraction of the cost of cells that Tesla uses. - Further, they come with almost the same energy density and power. In addition, the environmental damage is far less, as sodium is more abundant than Lithium. - In addition to this, the sodium-ion cells are less prone to burst into flames, in stark contrast to lithium-ion batteries.
What are the government's offers?
The Indian government was correct in insisting that Tesla open a plant in India before selling its cars here. The minister for Heavy Industries, Krishan Pal Gurjar, had elaborated on various schemes the government had on offer.
There were Production Linked Incentives for auto components and the manufacture of Advanced Chemistry Cell(ACC) batteries. Not only were these schemes available for local players, but they were also open to foreign entities.
So, what does Elon Musk do? Is Tesla in India or not?
He sets off to Indonesia and hopes to strike a deal with the government to set up a plant there. With the pandemic affecting the global supply chain, Musk feels it is better to be closer to the raw materials. Indonesia is rich with deposits of Copper, Tin, Nickel and other minerals. Maybe he's right. Perhaps he's not.
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