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WAITING GAME

Tesla’s arrival in India will turbo charge its nascent EV industry

A picture of the Tesla Model 3.
CHRIS HELGREN, REUTERS
Coming soon(ish).
  • Niharika Sharma
By Niharika Sharma

Reporter based in New Delhi.

Published Last updated

It was 2016, and Arun Bhat, a 34-year-old manufacturing professional from Bengaluru, could not have been more excited. Tesla, his favorite auto company, has finally opened reservations for its Model 3 cars in India. Shortly after they became available, Bhat booked one.

Now, five years and thousands of dollars later, Bhat is still waiting for his car, and the company hasn’t yet shared any update on when it will deliver vehicles in India. “I keep pestering the firm with my emails to get an update, [but] so far there hasn’t been any,” Bhat, who co-founded India’s first Tesla fan club in 2019, told Quartz. Despite the delay, he hasn’t given up hope on his car—or the company—just yet.

If all goes as planned, Bhat’s wait will soon be over. US-based Tesla plans to begin its journey in India this year, as CEO Elon Musk confirmed in a tweet from another Tesla fan club. So far, the only concrete step Tesla has taken was in January when it registered its subsidiary in the state of Karnataka. But there are signs that the company is doing more; reports have trickled in claiming that Tesla plans to set up R&D facilities in different regions. Tesla itself has not yet publicly confirmed its plans in India and didn’t respond to Quartz’s request for comment.

When Tesla does truly break into the Indian market, it will face numerous challenges to gain a foothold, including competition from homegrown carmakers to affordable pricing.

But if it can overcome those challenges, Tesla can further extend its dominance by opening itself up to millions of new customers—plus, experts suspect, accelerate the growth of India’s EV industry as a whole.

“Tesla will bring a paradigm shift in the EV industry as a whole in India,” said Deb Mukherji, managing director at Omega Seiki Mobility, a New Delhi-based EV startup.

What’s holding back India’s EV industry

Today, India’s auto industry makes up 6% of the country’s gross domestic product, but EVs represent less than 1% of the total vehicle sales in India. Two-, three-, and four-wheeled EVs are available, but two-wheelers and three-wheelers are the most popular because they are cheaper.

Still, it’s clear that India’s developing EV market is brimming with opportunity. The industry is expected to grow over 40% in the next six years, according to a Dec. 2020 survey by India Energy Storage Alliance, a coalition of energy storage and e-mobility technology companies in India. Prime minister Narendra Modi’s government has said that it intends 70% of all commercial cars, 30% of private cars, 40% of buses, and 80% of two-wheelers and three-wheelers sold in India to be electric by 2030.

But for the industry to reach its full potential, it will have to overcome a number of large-scale challenges. One is poor roads. At about 6 million km (3.6 million miles), India’s road network is the second largest in the world, per government statistics (pdf). And yet, many of the roads are not smooth enough to allow for a hassle-free drive, no matter the vehicle.

On top of it, the lack of charging infrastructure spells trouble for the development and adoption of EVs. It will be hard to convince customers to buy EVs if there are few private parking spaces, inaccessible electric meters, and broken electric charging ports that would keep them running. In 2018, India had around 650 charging stations, compared to China’s 456,000 charging points the same year.

Even if there are more places to charge EVs, larger problems loom in the electrical grid. The widespread adoption of EVs will further tax the already stressed coal-powered electric grid and raise the cost of renewable energy too high to be affordable to most. By the year 2030, Delhi alone would need around 300,000 charging ports, assuming 10 million EVs were on the road, a 30% EV penetration, according to Praveer Sinha, managing director of Tata Power Delhi Distribution.

The biggest hurdle, though, is cost. An average EV four-wheeler in India costs around US$18,000, much higher than the average $6,900 for economical cars running on oil, as per the current market price. Similarly, the price of electric two-wheelers in India is between $965 and $1,724, compared to the $413 to $551 range of internal combustion engine bikes.

As the cost of EV components has remained high, it’s pushed prices out of reach for most consumers, causing some automakers and industry experts to assume there is no demand for the vehicles. But surely, if the price were to drop, that wouldn’t be the case. China, which has been at the forefront of adopting EVs, sold 1.3 million EVs in 2020, according to Singapore-based marketing firm Canalys. What India sold isn’t anywhere close to that. Clearly, there’s room for growth.

Government solutions

The government is hoping policy can remedy some of these issues. In Nov. 2020, Nitin Gadkari, the minister for roads and transport, announced that the government will be setting up at least one EV charging kiosk at each of the 69,000 petrol pumps across the country.

It’s not the government’s first plan intended to support the EV industry. In the 2020 National Electric Mobility Mission Plan (NEMMP), the government provides incentives such as tax breaks to boost demand, and promotes industry R&D in battery technology, power electronics, motors, systems integration, battery management system, and testing infrastructure.

In its Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) scheme, the government has allocated $1.4 billion for loans and tax rebates for those buying EVs or setting up charging infrastructure.

Experts suggest that the government needs to do even more to boost EV adoption. According to Vahishta M. Unwalla, research analyst at Mumbai-based credit agency Care Ratings, the government should make higher public investments to build battery charging networks across the country and encourage auto dealers to provide incentives on new EV purchases.

“These incentives will reduce cost of production and, hence, the price burden on the final consumer will also go down,” Unwalla said.

The government can also provide support for the country’s battery manufacturing industry. The most popular and effective EV batteries are lithium-ion (Li-ion) batteries. Though 80% of the world’s Li-ion batteries are made in the Asia Pacific region, most of those are made in China, which is expected to double its battery-manufacturing capacity from 345 GWh to more than 800 GWh by 2030. But India hasn’t figured out yet whether it has sufficient reserves of lithium or not to support the ambitions of the country’s battery manufacturing sector. In the past year, the country discovered around 14,000 metric tons of lithium. But in order to succeed in building a battery manufacturing industry, the government (and other stakeholders) needs to aggressively explore its reserves of rare earth elements without further raising environmental concerns.

Critics, however, say these national policies aren’t perfect. Though India has some of the world’s most polluted cities in the world, its government still does not have a mandatory comprehensive policy to encourage carmakers to invest in the EV segment, as China does.

State-level policies are also helping to promote EVs at various stages. For instance, Karnataka (pdf) provides incentives for transportation organizations like auto-rickshaws, cab aggregators, corporate fleets, and public transport systems to replace their vehicles with EVs. The state of Andhra Pradesh plans to replace all government buses and commercial vehicles with electric versions by 2024. Uttar Pradesh (pdf), the largest Indian state, is planning to introduce at least 1,000 EV buses in public transport by 2030.

Currently, only 10 states (including Karnataka, where Tesla has registered its unit) have clear, established EV policies; four other states are waiting for final approvals for their drafts. The remaining states still need to create a basic framework for EV adoption.

Meanwhile, in India’s capital, the Aam Aadmi Party government has announced the “Switch Delhi” campaign. It offers discounts on two-wheelers, four-wheelers, and commercial vehicles in the capital region, though it does little to incentivize the switch to EVs for public transport systems or luxury and passenger vehicles.

EV companies gear up for demand

Incentivizing people to buy EVs won’t get very far if there aren’t enough vehicles to satisfy demand. Today, India isn’t making enough batteries to power the EVs the government hopes for. While bigger players (Hero Electric, Tata Motors, Mahindra, and Hyundai), and startups (Ather Energy, Okinawa and Nexzu Mobility) alike have scaled up their production and sales of EV vehicles, the limit on the number of EVs they can manufacture has restricted their growth. Reliance on Chinese exports for crucial auto components has proven to be risky as supply chains were disrupted during the pandemic, amplifying India’s need for a robust domestic manufacturing network.

The industry is slowly on its way. In 2019, the government launched the National Mission on Transformative Mobility and Battery Storage, which aims to financially support companies setting up large-scale, export-competitive battery manufacturing plants in India by providing tax benefits and loans. NITI Aayog, the government think tank, has proposed setting up government-owned gigafactories up to a capacity of 50 gWh over the course of 10 years, with an estimated cost of around $5 billion. Currently, India is in the process of setting up manufacturing plants with a capacity of 10 gigawatt hours.

All of this existing and planned government support is starting to bear fruit. More companies are joining the EV industry, providing more options for customers to choose. In Oct. 2020 alone, the sector witnessed three major EV launches from homegrown Tata Motors, Mahindra, and British firm MG Motors. Currently, the four major EVs on sale in India are: Tata Nexon EV (price starts from $9,800), Tata Tigor EV ($7,571), Hyundai Kona (price range between $32,870 and $33,201), and the MG ZS EV (starting price is $17,780).

Growing companies need more workers. Direct employment in the auto sector could rise to nearly 15 million by 2022 as the industry grows and introduces new technology, along with a growing economy and shorter life cycle for new cars.

In preparation for rising demand, the companies themselves are working on solutions to the country’s charging infrastructure problems. For example, in 2019, MG Motors set up its first EV fast-charging station in Haryana’s Gurugram. So far, the company and its partners have installed 22 super-fast charging stations across 17 cities in India. Tata Power is leading the charge in aggressively deploying the EV infrastructure across the country. Until February, the company has set up 400 power stations across 45 cities in India.

It has been expected that since the industry is still developing, the customers who dream of owning a Tesla could eventually come back to domestic brands.

Tesla’s arrival in India

The Indian government is trying to lure Tesla with tax benefits to build manufacturing hubs in the country. Formally, it’s not clear it’s working since the company hasn’t commented, but source-based reports claim that Tesla is in talks with the various state governments across the country to set up manufacturing facilities.

EV proponents expect that Tesla’s true arrival in India will turbo charge the fledgling EV industry. It’s a luxury brand that will not only boost the cache of owning an EV, it will help resolve the issues holding the industry back, making local companies more competitive.

Deepak MV, CEO and co-founder of Etrio, an EV mobility solutions provider, can think of two positive effects Tesla’s arrival will have on the existing EV ecosystem. “Firstly, it will spread more consumer awareness and create excitement owing to the entry of the EV giant,” he said. “Secondly, in the long term, part localization by Tesla has the possibility for the automotive component industry to upgrade and grow.”

The anticipation around Tesla’s arrival is reminding some consumers of IKEA’s long-awaited opening, in 2018. Though prospective consumers raised similar concerns about the cost of IKEA’s goods, that didn’t stop people from rushing to it when it opened, even stampeding at its launch.

Three years after its arrival, IKEA went the extra step to court the Indian consumer, formulating an India-specific product line with an affordable range of items. It’s hitting its targets, opening more stores in the country, and has also contributed to shaping up the scattered and disoriented furniture retail market in India.

That kind of success—for the company, for the market—is exactly what EV proponents hope Tesla’s arrival brings to its industry. But the key will be making a product that’s cheap enough for the average urban Indian to afford, “in the price range of Rs12-15 lakh,”—about US$16,500 to $20,600, said Amit Gupta, CEO and co-founder of YULU, the country’s largest EV-led shared micro-mobility platform.

“With current brand equity and sophisticated technology, Tesla can manufacture and localize in India to create a product that would appeal to the masses,” he said. “In the long run, the company can make India an export base for emerging markets.”

Rushi Shenghani, founder and CEO of Earth Energy EV, expects that Tesla will build manufacturing facilities throughout the country. “This will make component manufacturers more mature and complacent towards the quality of EVs manufactured locally, leading to the overall cost production of auto components going down heavily,” he said.

There’s certainly hype around Tesla’s arrival and its potential effect on India’s EV industry. In the meantime, customers like Bhat are patiently waiting.