Moneycontrol Pro Panorama | Tariff wars may put India’s auto industry at a crossroads

Global auto companies could be unintended beneficiaries.

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Out of the blue, Elon Musk’s Tesla seems set for a dream run on Indian roads. Indeed, this is great news for Indian auto consumers who are spoilt for choice, given the presence of almost every global brand in the market today. But it seems to have spoilt the rollicking party for incumbents -- both home-grown and global auto companies, as mirrored in the sharp decline in auto stocks over a month.

What gives?

On the face of it, Musk’s India push comes close on the heels of the recent tax rate cut in India on electric vehicles (EVs). However, given that Musk’s role is significant in US President Donald Trump’s office and business decisions, there could be more than meets the eye. Tesla setting up shop in India could be against Trump’s MAGA (Make America Great Again) principles. Media reports have quoted Trump’s displeasure over such a move by Musk.

For now, it is reckoned that Tesla will import completely knocked down (CKD) kits from Germany (where they have installed capacity) and sell cars in India. This does not make sense, given the sky-high (100 percent plus) duties currently on imported cars in India.

The moot question then is: Will India lower duties for imported cars? True, the pressure on India from US by way of reciprocal tariffs (India’s exports being subject to stiff tariffs) is high. But any move to reduce tariffs cannot be done in isolation for Tesla. It will open the floodgates for imported vehicles in the domestic market -- something that has been successfully staved off for decades through duty structures thus far by the Indian government. Other global auto companies could be unintended beneficiaries.

Therefore, any duty reduction on cars will make imports and the assembly of vehicles economically viable for foreign companies that have been waiting for an opportunity to cash in on the Indian consumer. Competition will hot up in the passenger vehicle (PV) sector -- this being the bone of contention at present.

To be sure, Indian auto firms are not oblivious to such developments and the possible impact on the market, their sales volumes and market share. However, such upheavals are not new to Indian auto companies. For years on end, global companies have eyed the aspiring Indian consumer. The two-wheeler incumbents such as TVS Motor, Hero MotoCorp and Bajaj Auto, have all had technological tie-ups with foreign firms such as Suzuki Motor, Honda and Kawasaki, respectively. Some joint ventures turned sour as battles for control were finally won by Indian business houses.

Similarly, in passenger vehicles too, American brands such as Ford, Chrysler and General Motors have attempted to ply the Indian roads. However, their efforts to set up shop were in vain. Indian counterparts, however, such as Mahindra and Mahindra and Tata Motors have navigated through some painful years, but been successful in luring and holding a grip on the Indian consumer. Global firms such as Hyundai India and Maruti Suzuki India have, over time, benefited from cost efficiencies of manufacturing in India and are also exporting to the rest of the world.

That said, all this success came against the backdrop of protectionism and high duties on imported vehicles. Will the story change if the Modi-government is forced to yield (give some leeway) to Trump’s demands? Can they alter their playbook to compete in a new era that is unfolding where rapid adaption to new technologies such as EVs, hybrid vehicles and the use of artificial intelligence is the need of the hour?

Certainly, Indian companies will have to invest more in research and development and be nimble-footed in moving with the times. After all, auto companies from the developed world have deep pockets to sustain competition for long. The consumer, meanwhile, is always in a hurry to go with the best at any given point in time.

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Vatsala Kamat
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