Picture: GETTY IMAGES
Picture: GETTY IMAGES

Bangalore — Tesla is closing in on an agreement to make electric vehicles (EVs) in India for the first time, opening up a new growth opportunity after setting up production in China.

Tesla has picked Karnataka, a southern state whose capital is Bangalore, for its first plant, the state’s chief minister said over the weekend. The carmaker has been negotiating with local officials for six months and is actively considering car assembly in the suburbs of Bangalore, people familiar with the matter said.

Tesla didn’t immediately respond to requests for comment and did not confirm the minister’s statement.

The company is conducting due diligence for office real estate in the region and plans to set up an R&D facility, said the people, asking not to be named because the matter is private. Tesla has focused on Bangalore because it’s shaping up to be a hub for EVs and aerospace manufacturing talent, they said.

Tesla has incorporated its Indian unit and registered offices in downtown Bangalore.

CEO Elon Musk all but confirmed Tesla would enter India in January after months of speculation. On January 13, the world’s richest man tweeted “as promised” in response to a report on a Tesla-focused blog that the carmaker was in talks with several Indian states to open an office, showrooms, an R&D centre — and possibly a factory.

That revelation sparked euphoria from locals, such as Nikhil Chaudhary, a student at the University of Delhi who helped start India’s Tesla fan club in 2019.

Despite the hype, Tesla’s foray into India may well prove challenging. The country hasn’t yet rolled out the welcome mat for EVs such as neighbour China, where Tesla set up its first factory outside the US and now dominates sales of premium EVs.

EVs account for about 5% of China’s annual car sales, according to BloombergNEF, compared to less than 1% in India.

“Considering the price of a Tesla, Musk probably won’t be able to sell an EV to most of the population in emerging economies,” said Pedro Pacheco, a Munich-based senior research director at Gartner. “However, looking at the size of the population and the potential for economic growth, Tesla will probably target a fast-growing group of affluent individuals that, in absolute terms, compares quite favourably to what we see in many developed countries.”

Charging spots

California-based Tesla may also use any Indian factory as an export base, leveraging several markets at the same time, Pacheco said.

However, despite India’s vast potential, charging infrastructure remains another impediment to large-scale EV adoption.

According to the International Energy Agency (IEA), about 60% of the world’s public slow- and fast-charging spots are in China. As Chinese carmakers roll out competitive EV models and develop a diverse ecosystem, the country is “heading towards disrupting the current global automotive industry landscape”, UBS Group analysts wrote in a report in January.

India has been making similar moves, but not yet on the same scale.

In 2015, it launched a faster adoption and manufacturing of hybrid and EV (FAME) plan, with a 9-billion rupee ($123m) commitment to subsidies that cover everything from electric tricycles to buses, according to the IEA. A second generation of the FAME programme introduced in 2019 was larger, with 100-billion rupees to encourage EV purchases and build out charging infrastructure.

India also cut the goods and services tax on EVs to 5% from 12%, effective August 2019, much lower than the levies of as much as 28% slapped on other motor vehicles, which have attracted criticism from companies such as Toyota.

Bloomberg

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