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With India's EV penetration at just 2.5 per cent, the market presents an opportunity -- provided Tesla gets its pricing right.
Tesla is set to make its India debut with a 4,000-odd sq ft showroom in Mumbai's Bandra Kurla Complex (BKC), one of the country's most expensive commercial hubs.
Reports suggest a preliminary rental agreement has been signed at Rs 35 lakh per month.
Since the news broke, there has been a debate on whether the Austin-based electric vehicle (EV) giant can succeed in the price-sensitive Indian market or will it need to compromise on profits.
At 10,000 units a month, the Indian battery electric vehicle (BEV) market is, after all, relatively small.
The potential impact on domestic EV manufacturers, government policies, and the broader market also remain subjects of speculation.
In his recently published analysis, Sathyanarayana Kabirdas, vice president-Mobility at US-headquartered consultancy Frost & Sullivan, wrote that India's EV market is set for strong growth, with a projected compound annual growth rate (CAGR) of 34.5 per cent between 2023 and 2030.
India Energy Storage Alliance estimates that cumulative EV sales crossed 4.1 million in FY 2023-24 (FY24), and it expects the number of operational EVs to exceed 28 million by 2030, he wrote. “This growth potential is a lure for Tesla which saw a sales drop in 2024, after more than a decade of growth.”
Tesla dominates the US BEV market with a 40 per cent share of the US market of 1.3 million units; it holds 20 per cent in Europe (1.9 million units) and 10-12 per cent in China (11 million units, including hybrids). However, it faces mounting challenges.
According to the European Automobile Manufacturers' Association (ACEA), Tesla's 2024 European Union (EU) sales fell 13 per cent, with Germany seeing the largest decline at 41 per cent.
As a result, the company's European market share dropped from 1.8 per cent to 1 per cent, and in January, sales fell 45 per cent year-on-year despite overall EV sales rising 37 per cent.
Some say this is the impact of CEO Elon Musk's political interventions on European buyers.
In the US, its home market, Tesla's sales fell 5.6 per cent in 2024 (633,762 units), marking its first decline since 2011.
In contrast, China bucked the trend, with sales rising 8.8 per cent to a record 657,000-plus cars last year. However, recent reports suggest a year-on-year dip in its January 2025 sales in China.
Tesla's global sales of 1.79 million cars in 2024 narrowly outpaced BYD (1.76 million), whose sales grew 12.1 per cent.
Facing stiff competition, Tesla has been cutting its global workforce and offering incentives, such as a 10,000-yuan loan discount in China for one of its best-selling models, Model Y, and zero-interest loans for Model 3 and Model Y.
Pricing it right
With India's EV penetration at just 2.5 per cent, the market presents an opportunity -- provided Tesla gets its pricing right.
Analysts at brokerage CLSA believe even a $25,000 Tesla EV wouldn't significantly threaten domestic automakers.
Tesla's most affordable models -- Model 3 and Model Y -- start at $35,000 ex-factory in the US. For India, the company would either need to strip down features or accept losses.
Even if India lowers import duties to 15-20 per cent, Tesla's prices would remain significantly higher than locally made electric SUVs from domestic players like Tata Motors, Mahindra & Mahindra, Maruti Suzuki India, and Hyundai.
CLSA said if Tesla launches a BEV at $25,000, it would come with “meaningfully compromised” features compared to its global models.
Meanwhile, original equipment manufacturers (OEMs) in India already offer “compelling features and competitive pricing”.
BNP Paribas analysts echo this sentiment. “In our view, local production won't make sense unless Tesla can reduce the price to under $30,000 to allow for mass volumes in India,” BNP analysts said.
The average price of cars sold in India is Rs 11 lakh ($13,000). BNP said it estimated about 25 per cent of the industry volume to be of models priced above $23,000, which would be most at risk if Tesla launches a product below $30,000.
The Indian automotive market offers an annual volume of around 1 million cars priced above $23,000.
To tap into this segment, Tesla will need a lower-priced model, ideally under $30,000 and manufactured locally, BNP added.
With the focus shifting to robotaxi and robotics, Tesla has, however, scrapped its low-cost Model 2 project, making a budget-friendly India-focused model unlikely.
Additionally, its plans for a cost-efficient “unboxed” assembly process and a new plant in Mexico have been shelved. So analysts don't expect a similar setup in India.
A skewed policy?
Tesla's arrival is also expected to influence India's EV import duty structure.
Currently, India imposes a 110 per cent duty (including agriculture cess) on EVs priced above $40,000, a policy analysts believe may change following reciprocal tariffs from the US.
Reports indicate a new EV policy is in the works, which may reduce import duty to 15 per cent.
This would come with conditions: That automakers invest at least $500 million in local manufacturing (over and above land and basic infrastructure); start manufacturing within three years; and achieve 25 per cent domestic value addition (to be increased to 50 per cent within five years).
The new policy would reportedly also allow OEMs to import 8,000 units annually at lower tariff for EVs priced above $35,000.
The OEMs would be required to generate Rs 2,500 crore in revenue in year two, Rs 5,000 crore in year four, and Rs 7,500 crore in year five.
Analysts at HSBC Research say that assuming an average selling price of Rs 35 lakh, Tesla would need to sell 7,000 units in year two, 14,000 in year four, and 21,000 by year five to meet these revenue requirements.
Meanwhile, auto stocks have corrected in recent weeks amid speculation that the new policy may be tailored for Tesla's entry, creating an uneven playing field.
“We've invested over Rs 4,000 crore in India, but past investments have not been considered. This policy seems designed to accommodate Tesla,” said the managing director of a leading foreign automaker, which also has an EV portfolio (he did not wish to be named).
Analysts at HSBC Research also said it would be an “unfair policy” for the existing personal vehicle (PV) industry -- by being favourable towards imported vehicles over domestically manufactured internal combustion engine (ICE) vehicles.
They added that lower import duty would require an investment of $500 million, which is not significant.
Compare it to Mahindra and Mahindra's EV-focused capex from FY25 to FY27, which is $1.45 billion, HSBC Research said.
A senior auto executive said the market buzz is that Tesla's initial shipments will come from its Berlin factory, which will produce right-hand-drive Model Y vehicles for India.
Tesla, he added, will stir the market due to its strong brand appeal and tech-forward positioning.
“However, India is both price- and value-sensitive. Consumers here demand feature-rich cars, and potentially stripped-down Tesla models may not be enticing,” he said.
The Model 3, Tesla's cheapest offering, starts at $35,000 in the US. Even with reduced tariffs, road tax, and insurance, its Indian on-road price would be $40,000 (Rs 35-40 lakh).
If Tesla positions itself 20-50 per cent higher than models like the Maruti e Vitara, Hyundai Creta E, and the Mahindra XEV 9e, it may not disrupt the domestic EV landscape significantly.
Mahindra's XEV 9e and BE 6 secured 30,179 bookings on launch day, with a booking value of Rs 8,472 crore (ex-showroom) – noteworthy, given that India's total EV passenger vehicle sales stood at 100,000 units in calendar 2024.
Long-term impact
India's BEV penetration stands at 2.4 per cent, compared to 12 per cent globally and 30 per cent in China.
With narrowing cost differences between ICE and EVs, alongside stricter emission norms (CAFE III and IV), CLSA projects BEV penetration in India could reach 15 per cent by FY28, and 25 per cent by FY30.
Even if Tesla captures 10-20 per cent of India's EV market by FY30, its overall PV market share would be just 2-5 per cent.
At the recent Business Standard Manthan summit, India's G20 Sherpa and former NITI Aayog CEO Amitabh Kant dismissed concerns over Tesla dominating the market.
“Tatas and Mahindras will not allow Tesla to succeed; their prices are very competitive,” Kant said.
Tesla's presence, though, could accelerate EV adoption and drive greater consumer awareness.
Tesla's ability to leverage reduced import duties could prompt other luxury automakers to adjust their pricing, Kabirdas wrote in his analysis.
The new dynamics the company creates may prompt further policy adjustments to encourage EV adoption and support local manufacturers to compete effectively against foreign entrants, he wrote.
Also, Tesla's "direct-to-consumer model may disrupt India's traditional dealership network, forcing automakers to rethink distribution strategies," Kabirdas wrote.
Clearly, Tesla's success in India will depend on how well it navigates complex regulations, local sourcing norms, and foreign investment rules. For now, all eyes are on Musk's next move.
Feature Presentation: Rajesh Alva/Rediff.com
