What Tesla’s stamp of approval means for India

As the electric carmaker gears up to enter the Indian market, the move has brought in focus the lucrative potential of the nascent EV market in the country.

With the world’s richest man all but confirming that Tesla Inc. will enter the Indian market soon, it has not only sparked jubilation among fans but also thrown the spotlight on the lucrative potential of the nascent electric-car market in the country as well as its efforts to ramp up manufacturing capabilities in the automobile sector.

On January 13, Elon Musk tweeted “as promised” – in response to a report on a Tesla-focused blog that the automaker was in talks with several Indian states to open an office, showrooms, a research and development centre, and possibly a factory. Last October, the Tesla chief executive had tweeted about a foray into India.

Zeroing in on Gujarat

Officials confirmed that Tesla has moved closer to its launch in India later this year by registering a company in the country earlier this month – Tesla Motors India and Energy Private Limited was incorporated with registered offices in Bengaluru.

While several industry analysts have confirmed that the Bengaluru office will serve as the R&D centre for Tesla, indications have emerged that the automaker is in discussions with several Indian states for setting up its EV manufacturing facility in the country – and Gujarat has quickly emerged as the top choice for serving as home to the Tesla manufacturing facility in India.

According to Manoj Das, additional chief secretary (ACS), Chief Minister’s Office (CMO) in Gujarat and in charge of ACS, industry and mines department, the Gujarat government is indeed involved in dialogues with the US electric vehicle manufacturer, who has been assured that it will receive a wide range of incentives as well as assistance for setting up a factory in Gujarat. “The world’s top most automobile companies have set up manufacturing plants in the state, which has become an automobile hub with key MSME players supporting large companies. Major electric car manufacturers and vehicle battery manufacturers are setting up facilities in Gujarat. We are hopeful that like other global automakers, Tesla will prefer Gujarat,” he told Economic Times.

Government incentives

Tesla’s entry into the Indian market is yet another testimony to the efforts of the Indian government in the past few years setting up the right infrastructure, incentives and liberalised regulations for major global players to set up shop in the country. The coronavirus pandemic has only accelerated those efforts in several ways, with a raft of global manufacturers based in China looking to take their business to a different country.
Further, Indian Prime Minister Narendra Modi has been actively promoting the production and use of electric vehicles to reduce the country’s oil dependence and cut down on pollution, with policies being rolled out to attract investments in manufacturing and infrastructure such as charging stations.

FAME framework

In 2015, India launched a Faster Adoption and Manufacturing of Hybrid and EV (FAME) plan, with a $123 million commitment to subsidies that cover everything from electric tricycles to buses, according to the International Energy Agency. A second generation of the FAME programme introduced in 2019 was larger, with nearly $1.3 billion allocated for encouraging EV purchases and building out charging infrastructure. The government also drastically cut the goods and services tax on EVs to 5% from 12% in August 2019, much lower than the levies of as much as 28% slapped on other motor vehicles, which had attracted criticism from companies like Toyota Motor Corp.

For carmakers, electric vehicles therefore represent a lucrative growth market for India.

Tata Motors, India's biggest carmaker, is expected to introduce a range of affordable electric vehicles this year, while Mahindra and Maruti are also expected to launch their own versions this year. In the past two years, Tata Motors, Hyundai, Morris Garages and Mercedes have launched new electric car models in the country, including the Mercedes EQC and Tata Nexon EV.