Ceremonial Entrance

In a stark contrast to Apple, which established its India production journey five years ago with the government's production-linked incentive (PLI) scheme, Tesla has been more cautious about setting up a manufacturing base in the country. The American electric vehicle giant has primarily resisted local production due to high import duties and stringent local manufacturing policies that India traditionally enforced.

India's automotive industry has always been subject to high import tariffs, with fully built Tesla vehicles facing a duty of approximately 110%. This made market entry prohibitively expensive for the company, which initially wanted to enter the market primarily through imports before committing to factory setup. Over time, the Indian government lowered the import duty from 110% to 15%, but on the condition that companies invest in India and meet certain sales targets, a requirement that complicated Tesla’s plans.

Apple, on the other hand, has robust contract manufacturing partnerships in India, enabling large-scale local production. In contrast, Tesla has focused on shipping vehicles from its Gigafactory Shanghai to India and setting up sales, service, and charging infrastructure instead. This approach allows Tesla to test the waters in a niche segment of luxury electric vehicles, which constitute only about 1% of auto sales in India, rather than competing directly with mass-market domestic EV producers like Tata Motors or Mahindra.

The Indian government's EV policy aims to develop a broadly competitive and open electric vehicle ecosystem without favoring any single manufacturer. The policy includes restrictions on imports unless domestic manufacturing or investment commitments are made, a preference for local production to benefit from lower duties, and an evolving framework balancing environmental goals with industrial policy promoting domestic manufacturing. This broad-based policy creates challenges for Tesla, which initially wanted to enter the market primarily through imports before committing to factory setup.

The high import duties and policy conditions aimed at favoring domestic manufacturing have been a stumbling block for Tesla. The need to meet investment and sales targets to benefit from reduced import duties delayed Tesla's entry. Furthermore, ongoing India-US trade discussions regarding tariffs complicate clarity on the policy environment that Tesla operates in.

Tesla's presence in India is currently symbolic, with a 3,000 sq ft experience center in Mumbai and another set to open in Delhi, along with a sparse supercharger network. The Model Y, launched in India from Tesla's Shanghai gigafactory, is Tesla's largest plant globally. However, due to a 70% import duty, the Model Y is one of the most expensive Tesla models globally, nearly 30% more than its US price.

The EV policy was in many ways a response to Tesla's persistent lobbying for lower import duties, which range between 70% and 100%. Whether this leads to deeper engagement or simply remains a showroom exercise will depend on whether the two sides agree to come to the drawing board again. For now, Tesla's presence in India is a beginning that is neither here nor there, a token presence that is a far cry from the government's initial hopes.

References: [1] Siddhartha, P. (2021). Tesla's Indian Dream: A Cautious Approach to the World's Largest Democracy. Car and Bike, 13 June.

Despite Tesla's initial interest in entering the Indian market primarily through imports, high import duties and strings attached to reduced duties have proven to be formidable obstacles, delaying its entry.
In contrast, Tech giant Apple has established a significant local production presence in India through robust contract manufacturing partnerships, allowing it to bypass the initial high import tariffs.
The Indian government's EV policy, which aims to foster a competitive electric vehicle ecosystem, presents challenges for Tesla due to its focus on local production and investment, which are prerequisites for lower tariffs.
The presence of Tesla in India, characterized by a small experience center and sparse supercharger network, is currently symbolic and falls short of the government's initial expectations, raising questions about its long-term commitment.
The high import duties on electric vehicles in India, ranging between 70% and 100%, have made Tesla models, such as the Model Y, among the most expensive globally, nearly 30% more than their US price.
Tesla's global success in finance, investment, and technology, particularly in the field of electric vehicles, has led to persistent lobbying for lower import duties in India, but the future of its presence remains uncertain, balanced on the edge of deeper engagement or simply a symbolic showroom exercise.