Tesla made two previous attempts to join the India market, all of which failed. Here’s a look at the causes behind its previous setbacks.
American electric vehicle (EV) giant Tesla, spearheaded by Elon Musk, has resumed its focus on the Indian car market. This is the third time the company has tried to make its mark in India, with the earlier attempts getting stalled for the most part due to a complicated mix of factors. The speculation about Tesla’s renewed commitment comes after a series of recent hiring and consultations with the government in India.
Initial Endeavors
Tesla’s Indian market journey commenced in 2021. The company’s original plan was to import its vehicles into the Indian market and sell them in the premium segment of the automotive space. Tariffs of up to 100% to 110% were levied on imported vehicles at the time, depending on their value and their engine size. Such tariffs would have effectively doubled the amount that customers had to pay to own Tesla vehicles, putting the company out of reach for most of India’s car buyers.
Tesla tried to engage in negotiations with the Indian government, proposing the lowering of these import duties, at least temporarily, to give the company enough time to gain a solid footing in the market and test the waters in terms of consumer demand. However, the Indian government was unwilling to make such concessions. This position was based on a determination to stimulate domestic manufacturing and motivate firms to manufacture within the domestic region.
Manufacturing Mandates
Tesla encountered a similar hurdle on its second try to enter the Indian market. There is no straight answer to this though but the Indian government had said clearly that it wanted Tesla to make a factory in India. It was in accordance with the Indian government’s “Make in India” program, which aims to boost local manufacturing, create jobs, and lessen import reliance.
Although Tesla recognised the advantages of local production, considering the investment needed, the company was not prepared to take the plunge without certainty about the market given that the demand for electric vehicles in the region had only just begun to develop. Tesla said it wanted to first gauge market demand and develop a customer base before committing to a major investment in a manufacturing plant.
As negotiations between Tesla and the Indian government stalled out, that paused Tesla’s plans for an Indian market. This proved to be too high and the insistence of the government on local manufacturing made it impossible at the time.
Evolving Dynamics
As the Indian market finally receives a visit from Tesla, their third attempt at the market, several factors suggest that the climate for Tesla here might have improved. Probably the most impactful new change is that the Indian government recently announced a reduction in import duties on EVs. Early 2024 — the government announced a cut in EV import duties for cars priced over $40,000, reducing the tariff from 100% to 70%. It is still on the higher side but a reduction means Tesla’s vehicles are largely at par in the Indian market.
The increasing demand for electric vehicles in India is also one of the key factors driving the market. Though the EV market in India remains small compared to other big automotive markets, it is growing quickly. A combination of factors is behind this growth, such as the awareness of environmental issues, government incentives for EV adoption, and the cost of batteries dropping.
As per the reports by The Federation of Automobile Dealers Associations (FADA) electric cars in India grew by 19.93% from 82,688 units in 2023 to 99,165 units in 2024. We can safely say that with better charging infrastructure and a growing number of manufacturers launching competitively positioned models the Indian EV market will continue going up.
Competitive Pressures
Tesla, however, still faces considerable challenges in the Indian market despite these positive developments. Local manufacturers pose a major challenge. Tata Motors and Mahindra & Mahindra, for example, have been rolling out several electric vehicles at a much more palatable price than Tesla. These in-country players have a good knowledge of the Indian market and have been able to create EVs that cater to the needs of Indian consumers.
Moreover, Tesla is not only in competition with local market players but also with other international automobile makers, which are also targeting the Indian EV market. Global brands like Hyundai, MG Motor, etc. have introduced electric vehicles in India and are using all their efforts to get a market share.
Strategic Considerations
To thrive in the Indian market, however, Tesla will require a far more sophisticated and well-planned approach. For example, they might start by importing a small number of cars in that area to start getting the word out about their brand. This would enable Tesla to understand consumer demand and get insights before committing to more considerable local manufacturing.
The other is to team up with local manufacturers to build Tesla cars in India. Tesla might consider entering a joint venture with a local partner to leverage their existing infrastructure and expertise, whilst also minimising its initial investment.
From the Indian perspective, Tesla must respond to the local demand for appealingly priced offerings. It will also require the company to make meaningful relationships with the Indian government and build a rapport that shows they want to help the country grow and not just their bottom line.
Looking Towards the Future
Tesla’s renewed interest in India is indicative of its increasing valuation as a major EV market. Strengthened by fast-growing consumer demand, a supportive ecosystem of government policies, and expanding charging infrastructure, the Indian EV market is poised to grow significantly over the next few years.
And, yet, Tesla’s road to success in India won’t be without its hurdles. The firm will have to manage fierce governance of national/government players and worldwide companies, ingraining itself into the respiration of the Indian area network, aligning its connections with social service and community, not to mention developing trustworthy ownership of the development. Whether or not Tesla manages to cross these hurdles and cement a successful presence in India is yet to be seen. There’s one thing for certain: All eyes will be on Tesla in its third bid to penetrate the Indian market.
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