Elon Musk’s electric car-making company, Tesla, is expected to soon start selling its base model in India. It is the first step for Musk’s company to enter India’s electric vehicle (EV) market before expanding further.
While the news of Tesla’s entry in India has left many of its fans in the country jubilated, capturing the market can become the company’s hardest challenge so far.
The company recently registered to open an office in the city of Bengaluru. A report suggests that Elon Musk is in talks with other Indian states to open showrooms and possibly a factory.
According to the report, less than one percent of vehicles sold in India are electric vehicles. Therefore, the real challenge for Tesla will be to create a niche for itself in the fuel-dominated auto market in India
India has been announcing measures to boost EV sales in the country, but they may not be enough to increase sales for expensive EVs manufactured by Tesla.
The government even cut the goods and services (GST) tax on EVs to five percent from 12 percent from August 2019. While it is much lower than the 28 percent charged on other motor vehicles, the rate of EV adoption in India remains abysmally low.
Pricing Problems faced by Tesla
Another challenge that Tesla will face in India is related to pricing. Considering that the upper limit for an EV to qualify for subsidies in India is Rs 15 lakh, Tesla’s expensive offerings will not qualify for EV subsidies in the country, BNEF analyst Allen Tom Abraham said.
It may be noted that an entry-level China-built Tesla Model 3 starts at 2,65,740 yuan or nearly $41,000. The cost of a Model Y sport-utility vehicle crossover out of Shanghai starts from 339,900 yuan.
Besides the price, the cost of export and taxes on the Tesla cars upon arrival in India will put it beyond the reach of most customers. According to the report, 75 percent of all Indian auto sales occur in the $10,000 bracket or lower.
It is about half the average price in China and just 25 percent of the average price for vehicles in the US. This indicates that Tesla’s most affordable car in India would only appeal to about 1 percent of the market, Abraham said. Therefore, Tesla’s volume of sales in India will be marginal.
While there are challenges along the way for Tesla, the Indian EV market is currently in a growing phase and its value could shoot up to $206 billion in the coming decade, according to a CEEW Centre for Energy Finance study.