Tesla's India entry puts spotlight on trade pact with US
President Donald Trump has already fired fresh salvos on a host of countries in the form of tariffs with Brazil hogging the headlines with a hefty 50 per cent. Peace has been made with China after the US realised that the latter was no easy pushover. Likewise, in the case of India, a separate deal will be finalised shortly where sectors like automotive will also feature in it.
The US has made known that the reciprocal tariffs will kick in from August 1 and a host of countries have already been identified for levies. India and a handful of others have been exempt since they will be entering into exclusive pacts with the US.
It is here that Tesla could benefit if import duties on completely built units from the US to India are slashed to levels of under 50 per centwhich will be lower than prevailing levels. Given that India's GST levels on electric vehicles are just 5 per cent, Tesla's CEO,
Elon Musk
, will have every reason to smile. The final cost of his Model Y will then be in the range of $60,000 (around ₹55 lakh or thereabouts).
There is no question that Tesla and Musk still have tremendous appeal across the affluent class in India. However, that does not mean that sales will take off with a bang from Day 1.Industry observer
The Tesla aura
Even if the India-US trade pact does not provide for a dramatic slash in CBU levies, Tesla may still choose to partially subsidise its range in order to draw more customers. As an industry observer says, the company is aware that there is a certain aura it has that could work out to its advantage in the short-term.
However, it will eventually have to walk the talk in terms of ensuring fast-charging infrastructure as well as timely after-sales service. 'There is no question that Tesla and Musk still have tremendous appeal across the affluent class in India. However, that does not mean that sales will take off with a bang from Day 1. Sure, there will be some initial euphoria in Mumbai and Delhi but this will not last forever,' said the observer quoted earlier.
There is also no question that the massive halo that enveloped Tesla a few years ago has dimmed to an extent now thanks to the fact that it is no longer seen as the invincible EV brand. Today, the Chinese have taken over that slot with brands like BYD surging ahead in the electric vehicle race. Automakers from China are now pulling out all the stops in offering top-class design and features at competitive prices, a heady mix which Tesla and other brands from the West are unable to replicate.
As an automotive CEO wryly added, 'If Chinese automakers had been allowed to invest here in India, they would have literally had a field day. Indians love the latest features in their cars and this is where brands from China would have left others way behind.' Right now, there is no love lost between India and China thanks to the border clashes which broke out in 2020 and relations have taken a nosedive since then.
Rough run
Tesla has also had a rough run in recent times thanks to the initial bromance between Trump and Musk which soured later and led to a falling out subsequently. The Tesla CEO's new avatar as a politician antagonised buyers in Europe who gave the cold shoulder to his cars and their sales have been falling dramatically across Germany, France, Italy and a host of other countries.
It is unlikely if similar sentiments will extend to India where Musk continues to be a poster boy for EVs even while his company struggles against stronger Chinese rivals. On the contrary, industry sources believe that policymakers in India are still smitten by the Tesla CEO which explains why they literally rolled out the red carpet for him in the form of a new EV policy.
Even this was no enough to attract Musk who is now determined not to produce cars in India and has opted to have them imported instead. With the new trade policy between India and the US also expected to be more liberal towards CBU imports, he will be happy sticking to this route with a handful of stores spread across India for the rich and famous who still swear by the Tesla brand.
The big question still remains…will Tesla end up being a huge success story in India or will the magic fade fast? After all, Indians are fastidious when it comes to price and features along with levels of customer support for the cars. There will also be concerns about resale value which possibly explains why many prefer the lease option for EVs instead of outright ownership.
Pioneering status
According to an automobile executive, Tesla derives its halo 'equally from its pioneering status' of creating a new category in the market coupled with the 'genius' of Elon Musk. He said BYD was getting increasing recognition for its superior technology even while the 'opaqueness' of Chinese pricing 'casts a shadow' on the authenticity of its competitiveness.
Will Tesla then stay the course in India? The executive was of the view that the brand's status symbol in India of being the first few customers to own a car would actually subside very quickly. This was because of superior electric offerings from the stables of companies like BMW for instance. 'So, these are emotional more than rational purchases of the wannabes,' he added.
The purchasing pattern in India, like the rest of the world, would also follow a layered route with different categories like innovators and early adopters leading the way while the more circumspect would follow after gauging market reaction. This is typical for all products and perhaps a little longer for those with hefty price tags.
By the end of the day, added the executive, customers are comfortable with products that are represented by 'great brands, look great, perform reliably and durably, are backed by good service, feel comfortable and offer great value for money, including resale value'. When it comes to a new beast like electric, the buying process could quite naturally take a more cautious and introspective route since big bucks are involved.
I just don't understand why India is so obsessed with Elon Musk. His coming to India is not going to make a difference except for a few hundred people who will buy a Tesla.An Auto Industry Leader
On a roll
Before his entry into politics and during the period when he was literally on a roll, Musk had everyone eating out of his hand. Every single statement hinting at an India entry was met with politicians across the landscape literally imploring him to set up shop in their individual States.
At a national level too, the EV policy was tailored to meet the Tesla CEO's whims and fancies except that he refused to bite the bait and play ball. These levels of hero worship irked some industry leaders who wondered what the big fuss was about when there were other automakers who were also doing a great job in the electric space.
One of them told this writer in no uncertain terms, 'I just don't understand why India is so obsessed with Elon Musk. His coming to India is not going to make a difference except for a few hundred people who will buy a Tesla. If he wants to come to India, he has to come on our terms and not on his (terms).'
Affordable imports
The only difference this time around is that despite his recent falling out with the US President, Musk will still enjoy the backing of a trade deal with India which will clearly help him at least from the viewpoint of more affordable CBU imports. Assuming this does happen, other carmakers in India will also seek similar concessions given that they have invested in EVs.
This is where free trade agreements with Europe and ASEAN may just pave the way for CBU import even though there will be a cap on their numbers. It will also be interesting to see if an India-US trade pact will change the business models of companies like Ford which have already announced their comeback plans. Will this also encourage Harley-Davidson (a favourite reference point for Trump) to have a rethink on India beyond the current alliance with Hero MotorCorp?
Tesla has thrown its hat into the India ring finally. What this will mean for India's auto sector and the tariff scenario remains to be seen. Doubtless, the White House will be watching the turn of events carefully and given Trump's unpredictable nature, India will play its cars very safely.
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