Tesla in India: A bumpy road ahead

Tesla’s entry into India has been one of the most widely speculated and anticipated business developments. Elon Musk-led firm has made multiple failed attempts to enter into the Indian markets. The most notable one was in 2016 when it launched pre-booking of its Model 3 electric vehicle. Several Indians, who pre-booked the car in 2016 by paying $1000, are still awaiting delivery.

Musk’s proposed visit to India in April 2024 boosted hope for the delivery of the much-awaited car in the Indian market. However, at the eleventh hour, Musk postponed his India visit citing preoccupation with urgent business matters.

By the end of 2024, the buzz around Tesla opening shops in India got louder, as did the victory of Donald Trump in the US presidential election. Musk, who is the world’s wealthiest person with a net worth of around $330 billion, was among the biggest funders of Trump’s election campaign and now is seen as one of the most powerful figures in the US administration. Officially, Musk heads a new US Department of Government Efficiency (DOGE).

Within a couple of months of the inauguration of the Trump administration, Tesla came out with a plan to open its first showroom in India. The company has signed a five-year lease for a property located at Maker Maxity building near Bandra Kurla Complex in Mumbai for the opening of a showroom. Another showroom is proposed to be opened in New Delhi. It has also started the process of hiring for multiple roles in India.

The development comes just a few weeks after Musk held a meeting with Prime Minister Narendra Modi in Washington in mid-February.

In a recent podcast with Lex Fridman, Modi said he has known Musk since his days as chief minister of Gujarat.

While Musk has been pitching for his EV sales in India for over a decade, Modi has also been showing his love for Tesla for years. The prime minister visited Tesla headquarters in September 2015, where Musk personally gave him a tour of the manufacturing facilities. Modi again met the Tesla chief in 2023 during his state visit to the US.

Despite the bonhomie, Tesla has so far not succeeded in setting its foot in India. High tariff is seen as the biggest hurdle in Tesla’s India ambition. Import duties on cars in India go up to 110 per cent.

The Electric Vehicle policy announced in March 2024 was seen as an attempt by the Modi government to facilitate the entry of Tesla into India. The “Scheme for Promotion of Manufacturing of Electric Passenger Cars in India” creates scope for import duty to be reduced to 15% from up to 110 per cent.

However, the scheme is applicable with conditions. To take advantage of this reduced import duty, a company is required to make a minimum investment of Rs 4,150 crore for setting up manufacturing facilities in India. The condition also includes sourcing at least 25 per cent of parts locally within three years, increasing it to 50 per cent by the end of the fifth year. The stated objective of the scheme is to attract investments from global EV manufacturers and promote India as a manufacturing destination for e-vehicles.

Given the stiff competition and price sensitivity Tesla is unlikely to make any significant impact on the Indian markets unless it starts manufacturing in India. While Trump’s reciprocal tariff policy may help Tesla enter the Indian markets, it will be interesting to see how it expands its business.