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Bloomberg
Bloomberg

Tesla’s entry may electrify EV sector

  • Tesla’s first and biggest challenge will be India’s high import duties, an issue that Musk had raised earlier

Tesla Inc.’s proposed 2021 India entry is expected to energize the local electric vehicle market and accelerate the adoption of battery-powered cars, although the world’s most valuable automaker will have to tackle steep import duties, small market size and an undeveloped charging network.

Elon Musk, founder and CEO of Tesla, confirmed the plan on 2 October. “Next year for sure," the billionaire replied to a tweet from a handle called Tesla India Club, which had put up a photograph of a T-shirt with the message “India wants Tesla".

“Thanks for waiting," Musk added.

Tesla’s first and biggest challenge will be India’s high import duties, an issue that Musk had raised earlier. “I am told duties are extremely high in India (up to 100%) even for electric cars. This would make our cars unaffordable," Musk had tweeted in 2019. Not much has changed on that front since then.

The second challenge is market size. Despite launches by domestic and foreign automakers, India’s EV market remains minuscule, compared with developed markets. Most EVs sold in India are low-speed two-wheelers and three-wheelers. EVs like Hyundai Motor Co.’s Kona, Tata Motors’ Nexon and MG Motor India’s ZS have limited sales.

“Entry of Tesla might convince other global manufacturers to invest here. However, it will be important for Tesla and other entities to understand the Indian ecosystem. Tesla needs to set up its charging network and offer different ways of ownership of cars since they are expensive by Indian standards," said Suvranil Majumdar, head of EV projects at International Finance Corp. According to Mazumdar, Tesla’s proposed R&D facility in India will also help create an EV ecosystem and build a supply chain.

India is, however, taking several steps to encourage EVs and become a hub for manufacturing and exports of such vehicles.

In 2019, goods and services tax on zero-emission vehicles was cut from 12% to 5%. In 2019, 10,000 crore was set aside to encourage development, manufacturing and use of EVs through the second phase of the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

Besides, official policy think-tank NITI Aayog is working with different ministries to develop massive factories for lithium-ion batteries in India, on the lines of Tesla’s GigaFactory in the US.

Tesla’s entry will not bring any sudden change but will definitely shine the spotlight on the sector, experts said, including the need for better charging infrastructure.

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