Tesla inches its India strategy out of the garage

By Ujjaini Dutta

BENGALURU, July 15 (Reuters Breakingviews) - Tesla TSLA.O, meet India. After years of eyeing the country, CEO Elon Musk’s $1 trillion electric-vehicle giant is opening its first showroom in the world’s third-largest car market, in Mumbai, on Tuesday. High import duties and modest incomes are likely to keep sales relatively low. But India offers Musk an opportunity too good to drive past.

It might not immediately seem so. Some 4.3 million new cars were sold in the 12 months to the end of March, according to the Society of Indian Automobile Manufacturers. EVs accounted for just 111,000, or 2.5%, of that, per JMK Research & Analytics, which has local player Tata Motors TAMO.NS dominating with a 53% share of electric vehicles purchased, followed by Mahindra and Mahindra MAHM.NS, and MG Motor. Moreover, the average price is less than $20,000.

That’s way below what Indian drivers will have to pay for a Model Y. Its on-the-road price is nearly $70,000, including an import tariff of 70%. New Delhi recently reduced the levy to 15% for overseas manufacturers investing at least $500 million and willing to manufacture onshore within three years, in part to woo Tesla and in part tosmooth the way for a trade deal with the United States.

But there’s not enough local demand to justify building the 500,000-plus cars-a-year factory that Musk favours. And exports to other countries in Asia can be met by the company’s Shanghai operation – or even by its factories in Europe and the U.S., which are currently operating below capacity.

There are, though, reasons to think that Tesla can be more than an afterthought of a player in India. While small, the country’s EV market is growing quickly. It barely existed five years ago, and its share of overall car sales has almost doubled to just under 4.4% in June, according to the Federation of Automobile Dealers Associations. And the ultra-rich are increasingly adding battery-powered rides to their fleets alongside gas guzzlers.

Let’s assume India’s new-car sales hit 5 million in 2030, with EVs accounting for a tenth. If Tesla can pick up 10% of those, it’d be selling 50,000 vehicles a year. Granted, that’s bigger than India's entire luxury car market in 2023 and a rounding error compared to the 1.8 million cars it sold globally last year. But as the world’s most populous country becomes more prosperous, having a strong base to build on will be crucial.

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CONTEXT NEWS

Tesla is set to open its first India showroom on July 15 in Mumbai’s Bandra Kurla Complex, Reuters reported on July 11.

At present the carmaker is not considering building a factory to manufacture vehicles in India. Teslas imported into the country will face a 70% tariff and other levies, the Reuters report added.

India on March 14 lowered to 15% import taxes on electric vehicles for carmakers committing to invest at least $500 million and begin domestic manufacturing within three years.

Teslas cost far more than India's current market-leading EVs

Electric cars are gaining ground fast in India