While the love fest between Chinese President Xi Jinping and his American counterpart Joe Biden grabbed all the headlines this week, Indian commerce minister Piyush Goyal attended the Asia-Pacific Economic Cooperation welcome reception in San Francisco. He also paid a visit to the Tesla factory in Fremont. According to media reports, the electric vehicle carmaker is in advanced negotiations with the Indian government to set up shop in India. The Narendra Modi government is pitching a model similar to Apple’s in the country.
The government is also reportedly looking to sweeten the deal with Tesla by offering a customs duty reduction for EVs. Some other reports claim that duty reductions will only apply to cars under $40,000, while others say that the policy is for vehicles across the board. This is a massive change for the Indian government, which hitherto adopted an extremely protectionist attitude toward the automobile industry with import duties of between 70 and 100 per cent depending on the value of the car. The high import duties became a sticking point in free-trade agreement talks with the United Kingdom and were also criticised by former United States President Donald Trump.
However, manufacturers have expressed some dismay at the government’s plans. A senior executive at a carmaker company told me on the condition of anonymity that any duty reduction should ideally be on components and for a limited time frame; he cites the Phased Manufacturing Programme (PMP), which the government recently announced for EV chargers. He argued that any duty reduction would not be fair to those who have started manufacturing electric passenger cars in India or plan to do so within the next few years.
“Tesla is the ‘new thing’ in town, and while getting a marquee investment like it will help in an election cycle, one has to remember that Tesla will need India more than India needs Tesla,” the executive told me. The reason for that last statement? Elon Musk’s largest market China is in the midst of a price war, as Chinese carmakers like BYD are catching up with the likes of Tesla. In the United States, there has been a slump in sales of EVs, although it doesn’t impact Tesla as adversely as others. In India, however, electric passenger cars account for just 2.5 per cent of monthly sales, and the segment is dominated by Tata Motors’ EV division.
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Duty reduction can actually help
Any duty reduction would immensely help EV adoption across the country as Indians are increasingly shifting to more expensive cars. A recent report in The Times of India stated that Indian automakers saw not only record sales but also the highest revenues — of over Rs 1.3 lakh crore in the festive season; the average sticker price of a passenger vehicle touching Rs 11 lakh. The growing average price indicates that Indian buyers might go in for a bite, especially if an electric C-Segment SUV the size of the Hyundai Creta could come in at around Rs 25 lakh with existing technology. A customs duty reduction, particularly on EV components such as cells, motors, and controllers, can be that catalyst. It can be coupled with a new, more ‘affordable’, Tesla model that is apparently in the works, especially for markets like India.
But will Tesla manage to enthuse Indian buyers? Korean carmaker Kia proved that a new carmaker can come to the country and succeed almost immediately. However, Tesla’s dealership-free model, mimicked by Ola Electric, incidentally might be a bridge too far for Indian consumers just now. Even though carmakers in India have tried a digital sales model, a dealership still closes the deal given the paperwork required for loans and registration.
And then there is the small bit about the cars themselves. There is no doubt that Musk created an immense brand, but other carmakers are catching up fast.
Doors are open for Tesla, but…
Consider the BMW iX that I have been driving these days. While some modern luxury cars are extremely button and gadget-heavy, this one is a prime example of functional minimalism. In these columns last year, I complained about how busy some modern steering wheels were getting, but this one is by far one of the best in terms of layout. And the iX itself is an amazing car to drive, its performance belying its size and weight as it accelerates on a dime and can take corners as well as any BMW sedan.
That said, I was a bit confused by the need to pump a fake noise through the speakers during heavy acceleration. Yes, I admit that the lack of noise is still a freaky thing when it comes to electrics. I agree with what Sid Lal of Royal Enfield told me a few months ago — he would never pump fake noise in his electric bike.
Back to the point: The BMW iX highlights that while all doors are being held open for Tesla, things might not be so easy in the Indian marketplace for the carmaker. A duty reduction on electric cars would also benefit BMW and other German carmakers, though. BMW India expects to close 2023 selling over 1,000 electric cars and anticipates EVs will fully account for a quarter of their volume in a couple of years. Even Hyundai and Kia, who have limited their sales of the IONIQ5 and EV6, would stand to benefit immensely at the more ‘affordable’ end of the spectrum if a duty cut is announced. Be that as it may, it takes courage to bet against Elon Musk.
@kushanmitra is an automotive journalist based in New Delhi. Views are personal.
(Edited by Humra Laeeq)