Tesla wants to test the waters in India before diving in.
On June 15, the electric car company’s founder and CEO Elon Musk tweeted that Tesla was seeking temporary relief from import duties in India, presumably so it can start selling in the country sooner, and at more affordable prices.
Tesla’s new India plans come nearly a month after Musk tweeted that he might be unable to sell in the country because of its “Make in India” push, which requires foreign companies to source at least 30% of their products locally.
When orders for the Tesla Model 3 opened at the end of March 2016, the electric car maker found takers among India’s startup bigwigs, like venture capitalist Mahesh Murthy and Paytm founder Vijay Shekhar Sharma, who forked over $1,000 to reserve a car that was yet to be released in the country. More than a year later, Tesla was still yet to take concrete steps to foray into the Indian market.
After Musk’s tweet in May about the local sourcing norms, the commerce and industry ministry clarified on Twitter that only foreign retailers—not manufacturers—are required to source a portion of their components locally. As per the policy, “a foreign investor is permitted to sell in any manner: wholesale, retail including e-commerce,” the ministry noted.
The government had also previously invited Tesla to make the country its Asia manufacturing hub. But despite the offer, Tesla does not seem to be inclined to manufacture in India yet. Still, since India is poised to become the world’s third-largest auto market by 2020, Tesla can’t afford to ignore the country. If not as a manufacturer (yet), Tesla wants to debut as retailer at least.
A concession from the government will serve as a subsidy in the initial years so they can increase their local presence. “They want to start selling the vehicles to understand the market in India,” Abdul Majeed, partner and national auto practice leader at PricewaterhouseCoopers, told Quartz. “From a niche play, they want to get into the mass market.”
Without a tax cut or exemption, the 125% duty levied on imported vehicles in India makes even the Model 3—a “smaller, more affordable” Model S—cost well over the US retail price of $35,000 (Rs23.4 lakh). (Even without the duty, Tesla’s cars are far pricier than local competitor Mahindra’s Rs5 lakh-Rs10 lakh cars.)
The benefit will likely only be “temporary” but its impact could be long-lasting. If the cars are a hit by the time the import duty makes a comeback, Tesla can start manufacturing in the country and avoid the cost altogether, Majeed suggests. In the meantime, India’s infrastructure and supply chain will also get time to mature further.
Cars are only the start of Tesla’s journey in India. Rumours of the company setting up a gigafactory to mass-produce lithium-ion batteries—known for their efficiency in recharging and storing energy—in India have been buzzing since October 2015. Tesla has also vowed to install a cross-country network of superchargers. Majeed believes that these plans will also materialize once the cars start running on Indian roads. “At the end of the day, what they’re trying to do is set up the ecosystem,” he said. To serve Indians, Tesla will also need to set up dealerships and service centers—both of which are currently non-existent.
The Indian government also stands to win if Tesla is able to woo India’s 1.3 billion-strong population. More than 95% of the electric vehicles on the roads are low-speed electric scooters—Mahindra is the only viable electric car maker in the country. Tesla could offer a much-needed push to realize the government’s ambitious target of making all vehicles in India electric by 2030. And when the environmentally-friendly cars replace their gas-guzzling counterparts, the burgeoning air pollution in the country, which kills 1.2 million people each year, would start to decline, too.