(Bloomberg) – Tesla Inc. concludes an agreement to make electric vehicles for the first time in India, and concludes a new growth opportunity after production in China.
Tesla has selected Karnataka, a southern state with the capital Bangalore, for its first plant, the state minister said at the weekend. People familiar with the matter have been negotiating with local officials for six months and are actively considering assembling cars on the outskirts of Bangalore.
Tesla did not immediately respond to requests for comment and did not confirm the minister’s statement.
The people are conducting careful investigations into office real estate in the region and are planning to set up an R&D facility, the people said, asking not to be named because the case is private. Tesla has focused on Bangalore because it is a hub for electric vehicles and talent for aviation manufacturing, they said. Tesla has taken up its Indian unit and registered offices in downtown Bangalore.
CEO Elon Musk has confirmed that Tesla will enter India after months of speculation. The richest man in the world tweeted “as promised” on January 13 in response to a report on a Tesla-focused blog that the carmaker was in talks with several Indian states for an office, showrooms, a research and development center to open – and possibly a factory.
This revelation sparked euphoria from locals such as Nikhil Chaudhary, a 20-year-old student at the University of Delhi who helped launch the Indian Tesla fan club in 2019.
Despite the hype, Tesla’s intrusion into India could potentially be a challenge. The country has not yet rolled out the welcome mat for EVs like neighboring China, where Tesla set up its first factory outside the US and now dominates sales of premium EVs.
According to BloombergNEF, EVs are about 5% of China’s annual car sales compared to less than 1% in India.
“Considering the price of a Tesla, Elon Musk is unlikely to be able to sell an EV to most of the population in emerging economies,” said Pedro Pacheco, a senior research director at Gartner Inc. in Munich. “The size of the population and the potential for economic growth, Tesla is likely to target a fast-growing group of affluent individuals who can compare very favorably in absolute terms with what we see in many developed countries.”
Charging points
Palacho, in Tesla, California, could also use an Indian factory as an export base while exploiting multiple markets, Pacheco said.
The expensive cost of a Tesla is also considered by other market viewers as a bottleneck. Mumbai-based Basudeb Banerjee, an analyst at Ambit Capital Pvt, noted that the size of the luxury car market in India is small and brands such as BMW, Mercedes, Audi and Jaguar Land Rover make up only 30,000 to 50,000 sales annually.
Read more: Jaguar Going All-Electric announces new CEO reversal plan
And despite India’s broader potential, infrastructure levy remains an obstacle to large-scale EV acceptance.
According to the International Energy Agency, about 60% of the world’s public are slow and fast charging stations in China. As Chinese carmakers develop competitive EV models and develop a diverse ecosystem, the country is disrupting the current global automotive industry, UBS Group AG analysts wrote in a report last month.
India has made similar moves but not yet on the same scale.
In 2015, it launched a faster plan for the adoption and production of hybrid and EV (FAME), with a commitment of 9 billion rupees ($ 123 million) to subsidies that, according to the IEA, cover everything from electric tricycles to buses. A second-generation FAME program launched in 2019 was larger, with 100 billion rupees to encourage EV purchases and expand charging infrastructure.
India also reduced the goods and services tax on EVs to 5% from 12%, which applies in August 2019, much lower than the levies of as much as 28% levied on other motor vehicles, which drew criticism from companies such as Toyota Motor Corp.
Read more: India has 150 million drivers and only 8,000 electric cars
(Updates with analyst comments in the 11th paragraph.)
For more articles like this, please visit us at bloomberg.com
Sign up now to stay ahead of the most trusted business news source.
© 2021 Bloomberg LP