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Can India Serve As A Profitable Market For Tesla Motors?

December 09, 2014 | About:

U.S. based premium electric car maker, Tesla Motors (NASDAQ:TSLA), is keen to enter the Indian markets and has identified the country as one of the possible locations for setting up a manufacturing plant in Asia. While appreciating the huge potential the market holds for fuel-efficient economical cars, Tesla’s management also spoke on the heavy duty applicable in India on imported vehicles and lack of a separate category for electric cars which have deterred selling its vehicles in India. But the electric car maker is optimistic that with these two issues addressed it would be able to get its cars to India by 2015. Let’s explore the factors that would be deciding Tesla’s success in the Indian soil.

Investing in India

Importing cars to India would trigger at least 100% import duty, so the company will have to incur capital expenditure to set up an assembly plant in India. But as the political environment in India is pretty unpredictable it would require government support for the initiative. Running a factory in India where innumerable labour laws are applicable won’t be that easy with all the bureaucratic red tape existing here. Also getting tax exemptions in India is a bigger issue to be handled by Tesla. In the U.S., the company receives huge tax breaks for running an environment-friendly car. But there are still no such provisions in India, as there is no separate segment for electric vehicles in this developing economy.

However, if Tesla gets a nod from a friendly state government and starts its operations in a special economic zone (SEZ), it could actually get tax breaks and manufacturing a slightly affordable car might become feasible. The best part of setting up base in India is that Tesla might not opt for a local partner; instead it can itself set a plant as the law allows foreign direct investment up to 100% in the Indian automobile sector.

Cost-conscious burgeoning class

Unlike the U.S. where consumers are not only interested in jaw-dropping prices, in India price is an important attribute that governs a car purchase. India is a huge SUV market when it comes to luxury car brands. While Tesla’s vision does not position its cars as pure luxury models, the game ought to change in India where it would target the upper class buyers who buy a BMW (BMW) or a Mercedes Benz (DAI) vehicle in the luxury car segment in spite of their steep price tags.

However, as Tesla plans to price the Model 3 between $30,000 and $35,000 in India, the car would be super-expensive (around INR 1.86 million). To make it affordable, Tesla would need to woo the Indian government to provide subsidies, which if approved could provide incentives worth $2.25 billion to support sales of 6-7 million new electric cars by 2020. But presently the government is cutting subsidies sharply to control its fiscal deficit. Hence, Tesla’s dream to capture Indian market might turn into a huge debacle in terms of the sales chart.

Elon Musk wants to make Tesla more affordable to the average car owner, but that dream has not yet materialised in the U.S. Moreover, setting up charging stations and building infrastructure would be a costly exercise making a huge slash in Model 3 price rather impossible to achieve. Thus, setting up base in India might be a tough goal even for a brand that’s run by a genius like Elon Musk.

Weak sales till now

As India never had a separate segment for electric cars and the government never did much to advocate such sales, majorly whenever somebody speaks of electric car in India it refers to the Reva launched by Mahindra & Mahindra (MAHDY) launched since May 2010. However, the Reva electric car sales have been quite dismal in India with less than 500 cars sold on an annual basis.

With very few charging stations in place and almost no infrastructure to advocate sales of electric cars in India driving the revenue chart in the country would not be an easy task for Tesla Motors.

Final word

Taking such factors into count, it is mere conjecture about how the brand will perform in the highly entropic Indian market. But the management is still upbeat though they are aware of these specific challenges in India. Besides U.S. and Europe, Tesla has already built a fabulous reputation in China which is the first Asian market that it dared to percolate. With dreams of reigning supreme in India, Tesla Motors looks all set to enter the Indian auto market and only time will suggest whether this move ultimately sees the light of the day.

About the author:

reports.droy
We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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