Don’t get your hopes up. Tesla is not likely to start selling its electric cars in India anytime soon. The excitement about Tesla entering India got fanned a couple of months ago when Tesla Founder and CEO Elon Musk tweeted a reply to a query about Tesla entering India.
Musk said he expected to enter India “this summer”, without getting into any more detail.
However, Elon Musk just tweeted another reply saying that he was told that entering India would require locally sourced components for its cars, and Tesla isn’t ready for that yet.
This development isn’t surprising really. When Tesla announced its Model 3 a couple of years ago, the company had said the car would be sold in emerging markets, specifically mentioning India as one of the markets. A Tesla spokesperson had confirmed that the company was considering an India foray only in 2019.
Hence, there was some surprise to Musk’s initial tweet. However, the fact that Musk says 30% parts must be locally sourced shows that Tesla has been doing its research on the Indian market. This foreign direct investment (FDI) rule was in place for technology companies – where 30% of the goods it sold or components used had to be made in India.
This rule does not apply for automotive companies, where localisation levels are usually much higher for vehicles made in India or very low for those that are imported as completely built units. However, for imported cars, import duties and taxes can go as high as 125% to 200% of the price of the car.
Tesla calls itself a technology company – and hence the 30% locally-sourced components rule applies. This would also help it attract lower duties. However, it would take some effort to convince the Indian government that a company that sells cars is actually a technology company. This rule was relaxed for Apple to make iPhones in India.
As a car company, if it was to import and sell its cars here, it would have to charge very high prices – a Model S would cost upwards of Rs 1 crore in India. That wouldn’t work well for volumes. The Model 3, if imported would still cost over Rs 60 lakh. Local assembly would be necessary to target a lower sticker price.
Besides that, before getting electric cars on to the roads, Tesla would have to consider setting up a charger network. In a country that is still struggling with rural electrification, this would be a challenge.
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