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India rolls red carpet to Elon Musk for a Tesla factory, but what can it offer?

Govt is promising lower costs. One analyst says since India’s EV market is very small, Tesla will have to heavily depend on exports. This is possible only if incentives are aimed to drive up exports. Gadkari’s hospitality comes at a time when Chinese regulators are questioning Tesla on many issues.

March 03, 2021 / 02:01 PM IST
Elon Musk.

Elon Musk.

Union Minister for Road Transport & Highways Nitin Gadkari has rolled out a red carpet of incentives for Tesla to convince the electric vehicle (EV)-making giant to set a full-fledged factory in India, promising costs lower than those in China.

Though the Elon Musk-controlled Tesla had registered a subsidiary in India in January, it has not divulged details of any of its operation plan and models in the pipeline for the country.

Gadkari spoke of providing higher concessions to Tesla, if the US-based company opts for full local manufacturing of its cars rather than settling for an assembly operation, wherein a car is put together using imported parts.

“The government will make sure that the production cost for Tesla will be the lowest when compared with the rest of the world, including China, when they start manufacturing their cars in India. We will assure that," Gadkari said in an interview to Reuters.

Tesla’s China journey

Tesla set up a factory in China in 2019, its first outside the US, which makes the Model 3. Musk has plans of setting up a design centre in China that will pave the way for a locally developed car to be sold around the world.

Gadkari’s warm hospitality for Musk comes less than a month after the Chinese regulators summoned Tesla officials for the first time over customer complaints about battery fires, problems with updating car software and unusual acceleration.

In recent months, competition for Tesla in China has skyrocketed, with the success of homegrown startups, like Nio, Xpeng and Li Auto. Wuling Hong Guang Mini EV sold more than Tesla Model 3 in January to become the most popular EV in the world.

Likely incentives India can offer

Gadkari did not specify the incentives the BJP-led government is willing to offer to Tesla but market watchers said the government could look at giving companies like Tesla priority in using infrastructure that aids exports.

“India’s EV market is very small, compared to that of China. This means that expensive brands like Tesla and others will have to heavily depend on exports to sustain themselves. This is possible only if the incentives are aimed to drive up exports,” said a Bengaluru-based auto analyst. Tax on electric cars in India is already the lowest at 5 percent, compared to other vehicles.

Besides the direct subsidy for EVs under the FAME – II scheme, the Ministry of Finance has allowed deduction for interest payment on loans taken to buy an EV. Most other incentives, such as cheap land, tax holidays, cheap power, road connectivity, low interest loan and labour availability, are state-driven subjects.

States keen on Tesla investment

News reports had already stated that as many as five states are eager to get Tesla onboard. These are Karnataka, Maharashtra, Gujarat, Telangana and Tamil Nadu.

According to Ford Motor Company, electric cars require 30 percent fewer hours of labour per vehicle, and 50 percent less factory floor space than factories that produce petrol or diesel-(ICE) powered cars. An EV has far less-moving parts than an ICE vehicle.

“The cost of labour is not a determining factor for setting up a factory for EVs. Maruti Suzuki and Tata Motors have employee costs of 6 percent and 9 percent, respectively, of their total manufacturing costs. It’s the availability of skilled labour that counts more. Needless to say, there is no production of battery cells in India at the moment and the government needs to get that done on a priority”, said a senior executive of a Mumbai-based company that is setting up charging stations.
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Swaraj Baggonkar
first published: Mar 3, 2021 02:01 pm