Driving Change: Tesla to rollout budget model for Asian markets

According to Tesla’s Q2 investor deck, it is working on developing its next-generation EV platform across multiple locations. Industry insiders said the new product, which is projected to be priced around $25,000, may debut by 2023-end, although some analysts expect a 2025 launch.

Currently, Tesla’s Shanghai gigafactory, the main export hub and its largest manufacturing facility, ships to Thailand and Singapore and will soon start exporting to Malaysia.

Nonetheless, Tesla faces formidable competition in these territories from China’s BYD, which has a dominant position in the emerging EV market in Malaysia and has outperformed Japanese EV makers in this region.

Tesla’s access to the markets is via exports, as low volumes do not make it a viable option to set up integrated gigafactories in this region. Besides, Shanghai’s 750,000-unit gigafactory, which produces Models 3 and Y, has enough room to ship vehicles to the neighbouring markets.

In its 19 July report, Barclays said it expects Tesla’s upcoming affordable EV to account for 275,000 deliveries in 2026 and to eventually become twice as large in sales compared to its present volume driver, the Model Y, at 3.5 million units annually by 2030.

This is despite the fact that Model Y is estimated to clock 1.5 million units in sales, and Model 3 990,000 units.

Tesla’s manufacturing capacity is at 2.025 million units across its factories in the US, China and Germany (Berlin).

Although Its largest unit in Shanghai produces 750,000 units, the firm’s largest manufacturing base is in the US across two factories in Austin (250,000 units) and Fremont (650,000 units).

“Tesla is well-positioned in the developed world, including North America, Europe, Japan, Korea, Australia and China, but it is not competitive in the developing markets, where income levels are lower, and Tesla’s current prices are not competitive there. In Southeast Asia, Latin America and the Middle East, Tesla isn’t competitive against Chinese brands’ starting offer in EVs in these regions. A $25,000 Tesla in India could be interesting, but what would be affordable is an even smaller price tag. Today, EVs in the developed world are facing price issues. Even if Tesla comes up with a $25,000 EV in India, it won’t shake up the market as the Indian consumer’s affordability is far less than that," said Felipe Munoz, global automotive analyst, JATO, said in an interview.

In April-June, Tesla’s deliveries were up 83% from a year earlier to 466,140 units, out of which 446,915 units were the Model 3 entry-level sedan and the Model Y mid-SUV. Tesla is cutting prices across its range to attract customers in an inflationary environment.

“Our operating income decreased slightly year-on-year to $2.4 billion in Q2, resulting in a 9.6% operating margin," Tesla said in its Q2 shareholder deck, indicating that this was due to a lower average selling price following price cuts.

According to brokerage JPMorgan, Tesla is expected to increasingly focus on more sales in “more mainstream price categories".

In India, BYD faces stiff challenges in the wake of the 2020 border clash between Indian and Chines forces in the Galwan Valley, which led to stricter regulations on foreign direct investment from neighbouring countries sharing land borders. This resulted in heightened scrutiny, and investment proposals from such countries require prior approval from the Centre. Tesla is seizing this opportunity to reinitiate discussions with India, despite uncertain growth forecasts in other markets.

While the challenges remain the same from earlier attempts, Tesla is now mulling a manufacturing unit here. With general elections approaching, the government is pushing the company to make firm commitments to its India manufacturing plan. Tesla may get incentives from the government along the lines of the production-linked incentive scheme it offers to the automotive sector.

“Musk has set out on an ambitious goal to achieve 20 million EV sales globally by 2030. To do that, it will need to set up manufacturing capacity and tap demand in some of the world’s largest markets, wherein India is a significant piece," said a person privy to Tesla’s India operation plans.

That said, Indonesia and Malaysia are also looking to offer incentives to Tesla for setting up local manufacturing operations.