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3 Major Challenges Tesla Needs to Overcome to Succeed in India

Last Updated October 4, 2020 10:30 AM
Mark Emem
Last Updated October 4, 2020 10:30 AM
  • Elon Musk announced Friday that Tesla would enter India in 2021.
  • India is the world’s fifth-largest auto market.
  • Several U.S. brands have quit the Indian market in recent years. This includes General Motors and Harley Davidson.

The long-awaited entry of Tesla into India is now months away if Elon Musk is to be believed. Musk announced on Twitter Friday  that the electric vehicle (EV) maker would be entering the Indian market “next year for sure.”

Elon Musk
Tesla’s CEO has vowed to enter India in 2021. | Source: @elonmusk/Twitter 

The rewards will be sweet if Tesla succeeds in the world’s fifth-largest car market. But it will not be smooth-sailing, though, and Tesla needs to brace itself for a rough ride ahead.

Here is what Tesla can expect to face in India.

1. India’s High Taxes

India boasts one of the highest tax rates on cars  globally. Currently, taxes on vehicles can reach up to 50%. This includes the Goods and Services Tax (GST) of 28% and levies that vary from 3% to 22%.

The tax rate for cars in India is one of the highest in the world. | Source: @bsindia/Twitter 

Although electric vehicle subsidies exist in places like New Delhi , they’re not enough to make Tesla’s cars affordable to more people.

High taxes discourage demand, which makes it less likely for manufacturers to pass on the benefits of economies of scale to buyers. This has been catastrophic for foreign brands, and Tesla could meet with the same fate.

Last month, Toyota indicated that it would halt further expansion in India due to the high taxes. High taxes were reportedly the reason Harley Davidson decided to quit  the market late last month.

Additionally, General Motors left India three years ago . Ford announced last year that it was moving most of its assets into a joint venture with an Indian automaker.

2. Fierce Competition

The Indian market for internal combustion engine vehicles is dominated by local auto manufacturers such as Maruti Suzuki. As of December 2018, Maruti boasted a 54% market share .

Other dominant players are Mahindra & Mahindra and Tata Motors. Already, the signs point to this trend being replicated in the EV market.

In the first quarter of the financial year 2020-2021, for instance, Tata Motors commanded an EV market share of 62% . This was helped by the launch of an electric SUV earlier in the year.

India’s auto giant Tata Motors claims it has a 62% market share in the country. | Source: @AUTOTODAYMAG/Twitter 

3. High Volume, Low Margin Environment

India may be the world’s fifth-largest car market, but automakers rely on moving large volumes at low margins.

Some of India’s best-selling EVs are priced below three times the cost of a Model 3, Tesla’s cheapest car. Tata Motors’ Tigor EV, for instance, starts at Rs. 9.44 lakh  (approximately $12,800) after subsidies.

India’s most affordable EV beats the Model 3 in price. | Source: @mishramugdha/Twitter 

Even with Tesla’s Model 2 price target of $25,000, it will only attract a tiny percentage of Indian buyers. To be a meaningful player in India’s EV space, Tesla would have to introduce cheaper cars. That’s an uphill battle for Tesla at the moment.

Tesla needs to keep its promise on India if it’s going to be successful. As most Musk watchers know, this is not the first time the Tesla CEO promises to venture into India.

Three years ago, Musk expressed hope that the EV maker would start selling cars in India by summer 2017. It was not to be. Last year, Musk indicated that if not 2019, 2020 would “definitely” be the year Tesla would launch sales in India .

Elon Musk has, in previous years promised to venture into India only to disappoint. | Source: @TECH_TJ/Twitter 

Now 2021 is the new date. Let’s hope it’s not the same old song.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.