Elon Musk has been teasing Tesla’s fans in India with an imminent market entry.
Tesla’s CEO has targeted the Indian market for a few years. Currently, there are several conditions favorable to making the electric vehicles (EV) in India. Initially, Musk might consider exporting vehicles from its manufacturing base in neighboring China to satisfy demand in India. Irrespective of the location, the car company will have to reduce its costs significantly in order to be a viable contender in India’s EV market.
Video Spotlight: Will Tesla Build a Gigafactory in India?
This post is based on the CNBC article, Why Tesla’s 20-Million Electric Vehicle Goal Could Next Take Elon Musk to India, by V. Barhat, October 22, 2020, and the YouTube video, Will Tesla Build a Gigafactory in India?, by Cleanerwatt, October 6, 2020. Image source: Shutterstock / Luciano Mortula.
1. What are the opportunities for Tesla’s entry into the Indian market?
Guidance: There are many opportunities that make Tesla’s entry into the Indian market an attractive proposition. The potential market size and labor pool are huge, and the fan base is expanding. Battery prices are falling, making it easier to produce a cheaper model. Trade disputes between the US and China call for back-up facilities in Asia. The Indian government has proposed $4.6 billion in incentives to companies manufacturing advanced batteries, reduced the regulation burden, instituted policy initiatives to accelerate EV adoption. The South Asian country has bilateral agreements with other countries where Tesla would like to increase its presence, and a Gigafactory in India could become a production hub for those countries.
2. What are the threats to a successful venture?
Guidance: Currently, Tesla can only sell to the luxury market, which is rather small in India. Moreover, the self-driving features of the car may not be appropriate for Indian road and traffic conditions. The lack of EV charging stations is another impediment. Finally, the COVID-19 epidemic has depressed the economy and continues to strain supply chains.
3. Should the manufacturing plant be located in India or nearby China?
Guidance: If import duties are lessened, Tesla may initially penetrate the Indian market with vehicles manufactured in China and the US. However, the current geopolitical climate with tensions between China and the US on one hand, and China and India on the other, makes it more likely that Tesla will eventually locate its manufacturing facilities in India in order to secure the valuable support of the Modi administration with the creation of thousands of jobs along the supply chain. Although the demand in India may be insufficient to justify the location of a Gigafactory there, the prospect of using that facility as a production hub for other countries where Tesla wants to expand its market presence seems attractive. Alternatively, Tesla could open an R&D facility in India (see video) and develop a car specifically designed for the Indian market.
4. How can Tesla reduce the selling price to below $25,000 and still be profitable?
Guidance: Assuming enough volume to cover the fixed costs, Tesla would have to reduce the variable costs of the models it plans to sell to the Indian market. The lower price of batteries has made the production of a cheaper model a viable option. In fact, Tesla has started to produce new battery cells rather than outsource production. These battery cells are supposed to be simpler and therefore less expensive to make. Tesla can also build on its experience and progress in EV manufacturing to scale production efficiently. Finally, labor costs in India are lower, and Tesla could tap into a vast pool of highly qualified engineers.