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Can Tesla jumpstart India's electric vehicle revolution?

The hope is that Tesla will do for the Indian EV market what Apple did for smartphones, or McDonalds did for the simple burger — disrupt it or impact it enough so that other brands are pushed to make better and cheaper electric vehicles

January 30, 2021 / 08:26 AM IST

Fourteen years after its launch in the United States, the world’s most valuable carmaker finally entered India this month, and registered its subsidiary in Bengaluru. Tesla had been contemplating entering the Indian market for a while, with its founder Elon Musk having even tweeted about it in 2018, citing India’s challenging regulatory regime as a reason for refraining to do so.

At present, the company seems to be scoping out the Indian market — planning to sell a made-in-China version of its iconic, eco-friendly car, and if demand picks up, to establish a manufacturing unit in India. It’s already in talks with five state governments — Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu — for setting it up, if things go according to plan.

This has sparked excitement and jubilation from enthusiasts and experts alike, many of whom believe Tesla to be just the shot in the arm India’s ailing clean mobility sector needs for its revival. This begs the question — Can Tesla really kickstart India’s EV revolution?

Challenges Galore

Estimated to be worth nearly Rs 500 billion by 2025, the potential of India’s EV market can’t be ignored. It could be one of the reasons why Tesla decided to venture into it, despite the ‘challenging regulations’ that still exist. India’s EV ambitions are huge. By the end of 2030, the Niti Aayog wants 70 percent of all commercial cars, 30 percent of private cars, 40 percent buses and 80 percent two wheelers and three wheeler to be electric.

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This is, of course, easier said than done.

For years, the government has been trying to make electric vehicles as mainstream as petrol and diesel vehicles, with little success. In 2015, it launched a Faster Adoption and Manufacturing of Hybrid and the EV(FAME) plan, with a Rs 9 billion ($123 million) commitment to subsidies that covered everything from electric tricycles to buses, and followed it up with a Rs 100 billion plan in 2019 to encourage EV purchases and build out charging infrastructure. It also cut the Goods and Services Tax on EVs from 12 percent to 5 percent effective August 2019.

Despite the measures, the rate of EV adoption has remained abysmally low, with just 3,400 electric cars and 1.52 lakh electric two-wheelers selling in India in 2019-20. Presently, EVs account for less than 1 percent of sales in India.

India’s challenging regulatory system is one of the reasons for this slow uptake, but there are others too — affordability being a major one. High ownership cost — that includes the cost for acquisition, running, and maintenance of an electric vehicle — remains one of the main reasons why buyers still aren’t willing to purchase an electric car.

Apart from cost, is the issue of value consciousness — most EVs in India provide a limited range and cover a limited distance (on a full battery) and fall in the Rs 6-10 lakh price bracket. Compared to diesel or petrol cars in higher segments with similar pricing, this does not offer any cost advantage, and is, therefore, a crucial deterrent in its adoption process.

The near absence of a suitable ecosystem for EV transition is another factor. To power India’s electric dreams, the government plans to set up a minimum skeleton network of 4,230 public charging stations in 53 cities with a million-plus population, but even that is just 1 percent of what is required to meet the needs of the targeted 30 percent of all vehicles by 2030.

In addition, switching to electric vehicles, by default, requires access to reliable power supply — something that appears like a big leap, especially if one considers the frequent power outages and low voltage in many parts of India, especially in rural India. The irony of powering a country's clean mobility plans, on polluting hydrocarbons such as coal, is also a fact not lost on anyone.

Tesla’s Strategic Role

So, where does Tesla figure in all this? When Tesla enters India, experts hope that the company will not just bring in futuristic technology driven cars, but also help build the missing ecosystem for EV vehicles. This, its hopes, will bolster the confidence of other EV manufacturers, increase the present scale of manufacturing, giving the buyer more options to choose from, and hence kick start demand.

In a way, the hope is that Tesla will do for the Indian EV market what Apple did for smartphones, or McDonalds did for the simple burger — disrupt it or impact it enough so that other brands are pushed to make better and cheaper electric vehicles, and the whole industry benefits.

This thinking is not faulty; it’s just that it may not be enough to power a full scale revolution. In future, even if more brands such as Tesla enter India, the country would still need a shift to renewable energy to reduce the burden on fossil fuels. This requires work and investment by both government and private players on a range of issues from infrastructure to energy storage, and research and development — things that will take time, and are unlikely to happen overnight.

That Tesla’s entry will facilitate discussion and reforms on a host of issues plaguing the EV industry goes without saying. Whether this alone will be enough to steer India’s EV flight, only time will tell.
Shikha Sharma
first published: Jan 30, 2021 08:26 am

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