After years of speculation, it seems that Tesla is finally ready to enter the Indian market. The American electric vehicle (EV) giant has started hiring for several positions in major cities like Delhi and Mumbai, and it is reportedly in search of showrooms in both cities. India, the world’s third-largest economy, presents a potentially lucrative growth opportunity for Tesla’s futuristic cars, especially as the company grapples with plummeting global EV sales and increasing competition from Chinese manufacturers. However, there’s one critical question that looms large: can Tesla succeed in a market like India, which is highly price-sensitive?
Currently, Tata Motors is the leader in India’s EV market, with an impressive 60% market share. Following Tata Motors is MG Motors, which is jointly owned by India’s JSW Group and a Chinese company, with a market share of 22%. Mahindra and Mahindra also hold a significant share in the market. These homegrown manufacturers offer EVs that are priced at less than half the price of Tesla’s base model, which is approximately $40,000 (£31,637). This stark price difference means that, for the Indian consumer, Tesla’s EVs will be categorized as luxury cars, competing against high-end EVs from companies like Hyundai, BMW, and Mercedes-Benz.
From a volume perspective, this makes India a relatively small market for Tesla, unless the company introduces a more affordable model specifically tailored to Indian buyers. In a country where cost is often the deciding factor for consumers, Tesla’s entry into the Indian market will require a deep reassessment of its pricing strategy if it hopes to attract mass-market buyers.
Apart from the price factor, Tesla faces another hurdle: India’s road conditions. The country’s roads, particularly in rural or less developed areas, can be quite challenging, with potholes, uneven surfaces, and occasional flooding. Tesla’s cars are known for having low ground clearance, which means that the distance between the lowest point of the car’s undercarriage and the ground is relatively small. This could make the vehicles more prone to damage on India’s rough roads. To adapt to these conditions, Tesla may need to re-engineer its models, which could drive up the production costs. However, it’s unclear whether Tesla would make such changes for a single developing market where the company’s presence may be limited.
Hormazd Sorabjee, the editor of Autocar India, points out that even high-end global manufacturers with smaller volumes have faced difficulties in justifying major engineering changes for a particular market. The question arises: will Tesla invest in altering its models just to cater to a single, developing market? It’s a tricky decision, as the company has never been one to compromise on its brand image or core design principles.
Moreover, despite all the hype surrounding EVs, they still account for less than 3% of overall passenger vehicle sales in India. While EV sales have been growing rapidly, infrastructure, such as charging stations, remains a major bottleneck. India has around 25,000 charging stations, but this number is still a far cry from what is needed to support widespread EV adoption. In other words, Tesla will find itself vying for a place in a relatively small market, despite the growing interest in electric cars.
On the policy front, however, India is clearly making an effort to encourage the growth of electric mobility. The Indian government has outlined an ambitious vision to increase the share of electric vehicles in the country. By 2030, the government aims to ensure that 30% of private cars, 70% of commercial vehicles, 40% of buses, and 80% of two- and three-wheelers are electric. In addition, most Indian states have established their own EV policies to promote both supply and demand for electric vehicles.
India’s government has also introduced generous subsidies for electric cars, which are among the highest in major economies. These subsidies can cover up to 46% of the price of the country’s most popular electric car models. The result of these initiatives has been a significant increase in EV sales. In the last five years alone, passenger EV sales in India have skyrocketed by over 2,000%, growing from just 4,700 units annually to more than 100,000 cars.
Jyoti Gulia, founder of JMK Research, explains that the price difference between conventional cars and EVs has decreased significantly, prompting customers to reconsider their purchasing decisions. The growing interest in EVs is evident, but it remains to be seen whether this upward trend will be sustainable in the long run, particularly as consumers in India still prioritize affordability over environmental concerns.
In April of the previous year, India took another step to make the market more attractive for international carmakers by reducing import taxes on EVs. Under the new policy, global manufacturers like Tesla, who commit to investing at least $500 million (£400 million) and starting local production within three years, are eligible for a lower import duty of 15% on up to 8,000 vehicles. This move came after Elon Musk voiced frustration over the high import duties that had previously hindered Tesla’s ability to enter India’s rapidly growing market.
Hormazd Sorabjee suggests that this policy is quite shrewd, as it essentially forces foreign carmakers like Tesla to localize their production if they want to benefit from lower taxes. In a way, the policy is designed to encourage foreign carmakers to build manufacturing facilities in India, rather than just exporting cars into the country. While this could be beneficial for India in the long run by creating jobs and boosting local manufacturing, it could place domestic carmakers at a disadvantage since the investment requirements for foreign players are relatively low compared to what domestic manufacturers have to invest in the same segment.
The reduced import duty is significantly lower than the tax on comparable internal combustion engine (ICE) cars, which also face additional road taxes, according to a report by HSBC. This means that Tesla’s cars will have a price advantage compared to ICE vehicles, which could help the company capture some market share in the luxury segment.
Mahindra and Mahindra, one of India’s top domestic EV manufacturers, has expressed no concerns about Tesla’s entry. Rajesh Jejurikar, the Executive Director and CEO of Mahindra and Mahindra, welcomes the competition, stating that more players in the market will strengthen India’s EV ecosystem. He notes that Mahindra is continuously working to improve the appeal of its EV offerings, addressing critical issues like “range anxiety” (the fear that an EV’s battery will run out before the end of a journey). Mahindra has made strides in this area by incorporating robust battery integration and conducting extensive real-world testing across diverse road conditions.
However, Tesla’s edge in battery technology and user interface is likely to set it apart from competitors. Tesla’s electric vehicles are known for their superior battery range, longer lifespan, and advanced technology, including cutting-edge user interfaces. These factors will likely appeal to India’s growing affluent class, who may see a Tesla as a status symbol. With India’s auto market seeing a rise in the demand for premium vehicles, Tesla may find its niche among the young, aspirational population that is increasingly focused on owning high-end products with a global brand appeal.
Despite the policy initiatives and rising interest in premium cars, Tesla has yet to commit to setting up a manufacturing facility in India. For now, it appears that Tesla will import vehicles from its overseas factories, which could make the cars even more expensive for Indian consumers due to shipping costs and taxes. The eventual decision to localize production will depend on a range of factors, including the growth of India’s affluent consumer base and the outcome of trade negotiations between India and the US. There are concerns that Tesla could face political pressure from the US government, with President Donald Trump recently criticizing the idea of Tesla establishing a factory in India to circumvent high tariffs. Trump’s “America First” policy could complicate Musk’s plans to set up manufacturing operations in India.
Ultimately, Tesla’s entry into India remains uncertain. While the growing interest in EVs, the government’s push for cleaner transportation, and the rising demand for premium vehicles offer potential opportunities, the company’s success will hinge on several factors, including pricing strategy, the adaptation of its vehicles to local road conditions, and the long-term viability of India’s EV infrastructure. For now, it seems that India will see glitzy Tesla showrooms catering to the wealthy, rather than large-scale manufacturing plants aimed at creating jobs for the country’s vast under-employed population. Whether this changes in the future will depend on a variety of factors, including the company’s ability to adapt to the Indian market and the broader economic and political context.
