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Tesla to enter India in 2021, how will it impact Indian automakers?

The Model 3 sedan will still be the first car to enter India and this will be done through the completely built unit route.

December 30, 2020 / 11:24 AM IST
Source: Reuters

Source: Reuters

American clean-energy and electric-vehicle company Tesla is expected to begin its operations in India in the new year.

Union minister for road transport and highways Nitin Gadkari confirmed on December 28 that the electric-car manufacturer would be arriving in India in early 2021. The company led by maverick billionaire Elon Musk will first start with sales and then look at assembly, if the demand requires it.

The company had been in talks with India in the past, too, to enter one of the world's largest markets. In 2016, bookings for the Tesla Model 3 had begun but the takeoff stumbled on infrastructure issues.

The Model 3 sedan will still be Tesla's first car to offerred in India and it will be done through the completely built unit (CBU) route.

Also read: Tesla will enter India in early 2021: All you need to know

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This, however, does mean higher import costs but if the company uses the 2,500 unit limited to import, prices could be slashed significantly. This will mean a price difference of Rs 55-60 lakh at full cost and Rs 35-40 lakh under the limited import route.

What does it mean for Indian automakers?

Tesla's entry is expected to give a boost to the EV segment, which may result in a jump in demand for batteries.

Besides, Tesla's entry into India will be a good advertisement for India's ambitions to be s global hub for manufacturing EVs but it will take time.

"Its proliferation is expected to take a good amount of time as neither Tesla nor India is ready for EV infrastructure. It will take establishing a wide network of vendors, software infrastructure, R&D, testing, etc. for its further development though the company is set for its Indian debut in 2021," said Ashwin Patil, Senior Research Analyst at LKP Securities.

Patil said Tesla was planning to enter India through a launch of its Model 3, which will range up to Rs 55 lakh, thus causing no threat to any of the domestic OEMs initially.

"However, later on, there will definitely be an EV revolution in India over a period of time but again affordability may act as a dampener from the customer's point of view. Therefore battery pricing will play a major role in the overall pricing of the EV," Patil said.

He also pointed to the uncertainty over the mode of manufacturing. So, Tesla's entry will not impact the auto industry in the near to medium-term.

Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities, agrees.

"Entry of Tesla will not impact the auto industry in the near to medium-term. Unlike mobiles that cost below Rs 1 lakh, Tesla’s popular Model 3 will cost more than Rs 50 lakh in India as and when it is launched," said Oza.

"Tesla does not have any manufacturing plant in India, so the cars will be completely built units (CBU) attracting very high duty. India does not have proper charging infrastructure, which could be a big deterrent for EV car buyers, especially while travelling long distances," Oza added.

As the car will be imported, there will be no benefit to any Indian auto component manufacturer.

Oza also said the entry of Tesla will also not hurt battery manufacturers in the near-to-medium term as the market for premium cars costing more than Rs 50 lakh is nascent and minuscule in terms of sale volumes in India.

The maximum volumes come from cars costing below Rs 10 lakh, so unless "we have appropriately priced electric vehicles they may not pose a big threat", he said.

"As battery technology evolves, charging infrastructure is put in place and we start getting electric vehicles costing less than Rs 10 lakhs, then they may cause a threat to the automobile industry," Oza said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Dec 30, 2020 11:23 am

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