India is a market with largely untapped potential for electric vehicles right now. Currently, there are a handful of electric vehicles on the market, like Hyundai Kona, Tata Nexon and MG ZA. The charging infrastructure is also not well-developed, and this has prompted the government to take steps towards backing electric mobility. All in all, the electric scenario doesn’t seem all that bright at the moment.
All this could, however, change in the coming months. Tesla Motors announced early this year that they will be entering the Indian market, and this could definitely make some waves. The Elon Musk-led company is a very well-established brand in the field of electric vehicles, and its entry could change the electric mobility scene in India.
Tesla To Set Up Manufacturing Unit in Karnataka
Yesterday, Karnataka Chief Minister BS Yediyurappa confirmed that Tesla will set up a manufacturing unit in the state. He said, “American firm Tesla will open an electric-car manufacturing unit in Karnataka.” The announcement was part of the list of benefits promised to Karnataka in the Union Budget.
Confirmed ?. Tesla asked some of its employees in Texas if they want to move to India?? https://t.co/fkSV13lP2Y
— Tesla Club India® (@TeslaClubIN) February 13, 2021
The plan to have a manufacturing unit in Karnataka makes sense. The southern state has become an electric vehicle hub in India. A number of companies like Mahindra Electric have their headquarters in Bengaluru. Start-ups like Ather Energy, Sun Mobility and Ola Electric are based in the city as well. Karnataka was also the first state to have an electric vehicle policy, and other states followed suit later.
Bengaluru is a hub for global technological companies, and Tesla has also set up an office in the city last month. A manufacturing unit in the same state is sensible, as laws can change across states. Moreover, there is a scope to set up the manufacturing unit in northern Karnataka, somewhere near Dharwad, which has a lot of industrial companies right now.
Elon Musk mentioned in July 2020 that Model 3 will reach India very soon. On 3rd October last year, Tesla CEO Elon Musk had replied to a tweet, saying that Tesla will come to India “next year for sure”. Musk then announced that Tesla would be coming up with a Booking Order Configurator for the Indian customers. This would go live in January 2021. While most experts felt that Tesla will make its India entry through Bengaluru, as it has become the EV hub of the country, the Maharashtra government also invited the Californian automaker to set up camp.
Thus, in the past few months, there have been rapid developments in Tesla’s entry into India. Tesla’s intentions of building a manufacturing unit in India were clear from the beginning, and this announcement will please many.
Why Having a Manufacturing Unit in the Country is Beneficial
India is one of the largest markets for automobiles in Asia. However, a huge percentage of the citizens are part of the working middle class. This means that many people cannot afford Tesla vehicles. There was a similar situation in European countries and the United States a few years back as well. But the introduction of the Model 3 changed the dynamics of Tesla’s market.
Model 3 is a mid-sized family sedan, which starts roughly at $40,000. Converted into Indian currency, that is approximately ₹30 lakhs. However, the import duties on completely built units (CBUs) is very high at the moment. The addition of this import duty will take this price to ₹55-60 lakhs if Tesla has to export all deliveries into India.
But the addition of a manufacturing unit to Tesla’s armoury in India might solve this problem. Tesla can buy components from local manufacturers, or import them from outside. This will directly affect the selling price of the Model 3, and make it more affordable. The Model S and Model X, though, will remain the premium models.
Moreover, Tesla has also announced that a $25,000 vehicle is coming to its roster. While the launch of this vehicle is still a long way off, this car will get a very good market in India, where small-car sales dominate the market. An electric vehicle under ₹20 lakhs will receive a resounding response from consumers, especially considering the constant hikes in petrol and diesel prices in the country.
Finally, a Tesla manufacturing unit could also include charging infrastructure. While Tesla hasn’t confirmed this yet, its entry into the country will see a dramatic improvement in electric vehicle charging infrastructure.
Indian Government Promoting Electric Mobility
China and India have slightly similar consumer demands for automobiles. But China boasts of close to 5% market share for electric mobility, while for India, it is less than 1%. This has pushed the government to promote the use of electric vehicles through various schemes and policies.
India plans to offer $4.6 billion in incentives to companies setting up advanced battery manufacturing facilities. This will promote the entry of battery manufacturing companies into India, which, of course, will aid the current electric vehicle manufacturers.
Under the new regime, GST (goods and services tax) on electric vehicles is reduced from the existing 12% rate to 5% as against the 28% GST rate with cess up to 22% for conventional vehicles. The Ministry of Power has allowed the sale of electricity as a ‘service’ for the charging of electric vehicles. This will attract investments into the charging infrastructure. The government has proposed the exemption of registration fees for battery-operated/electric vehicles to promote the use of eco-friendly vehicles in the country. The Ministry of Road Transport and Highways has allowed the age group of 16-18 years to obtain driving licences to drive e-scooters.
All this is being done to promote the use of electric mobility in the country. Many major cities also use battery-powered buses for public transportation. Thus, it is quite clear that the government is trying to push for green mobility as much as possible.
The transportation sector accounts for 18% of the total energy consumption of the country. The use of electric vehicles is going to decrease this figure slowly and steadily. Companies like Tesla will serve as external aid in bringing down fuel consumption and subsequently, pollution in India as well.