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Why did Tesla drop its EV plans in India? click to Know more

The government’s requests for companies like Tesla were basic and simple: invest in India’s manufacturing capacity. Tesla, on the other hand, sought to measure consumer demand by importing automobiles from its two major production hubs: China and the United States.

It appears that the continual tug-of-war between the Indian government and Elon Musk has finally concluded, although it is unclear who has lost the struggle. Earlier today, Reuters reported that Elon Musk had put his Tesla India ambitions on hold due to a protracted impasse with the government, which refused to accede to his demands for lower rates. The announcement has placed a shadow over the likelihood of international EV manufacturers establishing a presence in India, with Tesla being the most anticipated participant to enter the Indian EV market.

While Musk himself has not commented on the topic, it is public knowledge that Tesla has advocated for lower import levies on vehicles priced above $40,000. The brand had planned to make a choice based on the annual budget hearing on February 1 of this year. Given that its demands for concessions were denied, the brand moved people engaged with its India operations to other duties, as Tesla continues to see strong demand from its U.S., Chinese, and European markets while contending with escalating lithium-ion pricing.

Government vs Tesla

The government’s requests for companies like Tesla were basic and simple: invest in India’s manufacturing capacity. Tesla, on the other hand, sought to measure consumer demand by importing automobiles from its two major production hubs: China and the United States. But Tesla’s request for much lower levies would have resulted in other brands requesting similar concessions from the government.

When the Central Government launched its PLI program, with incentives of Rs 45,016 crore set aside to encourage the local production of EVs, the arrangement appeared ideal for a major brand like Tesla. In fact, one of the early objections of the scheme was that the primary eligibility condition required an OEM to have a global revenue of Rs 10,000 crore — something a local startup could never expect to achieve. The plan appears to have been designed largely to facilitate the participation of legacy and non-legacy automakers in the grand Indian EV festival.

However, Tesla has maintained its lead in the EV market not only through its vehicles, but also through a global network of Superchargers (over 30,000 and counting). Inconsistent power supply suggests that Tesla will be unable to construct a supercharger network in India in order to generate demand. Simply said, Tesla wants to get off to a fast start, but there is no evidence to suggest that it can. However, other automakers are content to crawl, while Tesla desires to fly.

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The Immediate Need

Tesla’s change of heart was not caused solely by government policies. Although Tesla has not issued a statement and company representatives have declined to comment on recent events, the truth may be more complicated than it initially appears. Stabilizing the supply chain and mining massive amounts of lithium are urgent requirements for Tesla, given that demand in its primary markets remains high. Due of the quantity of raw materials in Indonesia, Musk is skipping India in favor of a meeting with the Indonesian president (an otherwise miniscule car market). In light of post-Covid supply chain disruptions, according to a Bloomberg article, closeness to raw materials is crucial to business success.

Tesla, a manufacturer of luxury electric vehicles, is not the only company importing EVs into the country. Mercedes-Benz India was the first company to introduce a luxury EV, the EQC, to India in 2020, when the EV environment was even less crowded than it is today. Audi India released a record five EV models in 2021 and is currently the market’s leading seller of luxury EVs. BMW currently offers two electric vehicles in India, with the i4 set to debut on May 26.

Nevertheless, these EVs represent a negligible fraction of their sales and exist solely to establish their presence in the EV category. Tesla, on the other hand, has no product other than pure EVs to account for volume sales, and given that its least expensive vehicle would have cost nearly Rs 60 lakh in the market, its chances of being a sales success in a burgeoning EV environment were slim, despite the fact that many brand fans eagerly awaited its products. Musk desires to concentrate on dwindling access to raw materials and resolve this issue first, so that Tesla can continue to meet the world’s tremendous demand. A market with less sales potential is a secondary concern.

The Indian EV market does not require another luxury EV at this time. Tesla creating a manufacturing base would have a long-term impact on India’s EV growth, but Tesla has made it abundantly plain that it has no plans to produce a low-cost EV for the Indian subcontinent. Its challenge was subsequently accepted by Fisker Inc., which established its India headquarters in Hyderabad early last year. Through India, Fisker aims to sell relatively inexpensive electric SUVs and export them to markets such as China.

Why did Tesla drop its EV plans in India
Why did Tesla drop its EV plans in India

Tata Motors, Mahindra, and Maruti Suzuki are currently responsible for developing a low-cost EV that would improve market penetration to an optimistic 27-30 percent by 2030. A larger market share would encourage further investment. Even 10 percent market penetration sounds ambitious given the current state of affairs.

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The successful and unsuccessful

Tesla is hardly the only manufacturer that has reversed its EV strategy. Ford Motors, which had considered entering the electric vehicle (EV) market in India, stated earlier this week that it had abandoned those ambitions. The brand’s Indian management announced in a press release that it no longer planned to use its existing plants as a possible EV manufacturing base (for exports). Although Ford got government approval for a Production-Linked Incentive, it has stated that EV manufacture, especially for export purposes, is not in the cards. Ford was one of twenty firms picked by the Government of India for a Production-Linked Incentive program, but it appears that the brand did not see the long-term potential of participating in such a program. Unanswered is the question of why it initially applied for the position.

Other automakers, such as Mercedes-Benz India, are bringing high-end luxury EVs and their assembly equipment to India. By the fourth quarter of 2022, Mercedes-Benz India will begin assembling its electric flagship, the EQS, at its Chakan, Maharashtra facility. Local assembly will substantially reduce the EQS import tariff by forty percent. The EQS will be the first of numerous electric vehicles that Mercedes-Benz plans to produce in India, despite the limited sales potential for these vehicles in the current market. However, Merc, like other European automakers, wishes to create an early market presence. Something Tesla does not appear interested in.

With Tesla and Ford abandoning their EV aspirations, brands such as Tata Motors, Mahindra & Mahindra, Kia Motors, Eicher Motors, and PCA Automobiles have emerged as victors. All of the aforementioned brands are among the twenty permitted by the PLI program. In addition to these enterprises, Maruti Suzuki, Bajaj Auto, and Hyundai have made the cut, with the latter having secured a Rs 4 crore investment and launching six electric vehicles on the market. Overall, the PLI plan has attracted investments in excess of Rs 74,850 crore, surpassing its investment target of Rs 42,500 crore.

Maruti Suzuki announced a Rs 11,000 crore investment for a brand-new manufacturing site in Sonipat, Haryana, before the ink on Tesla’s and Ford’s resignation letters had dried. And while Maruti Suzuki has not revealed what type of vehicles it plans to manufacture at its 250,000-vehicle-capacity factory, its operations will begin in 2025, the same year Maruti Suzuki plans to introduce its first electric vehicle in the country.

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