Will Tesla Make (it) in India?
Just last week, a string of investments added a fresh dose of optimism to India’s EV segment. First, an ET story quoted sources saying that Foxconn’s EV arm Foxtron is eyeing the Indian market to set up its EV manufacturing units. Sales of EVs in the Indian subcontinent have increased, supported by government regulations in the area. According to a FADA report, 17,804 commercial EV units were sold in India in FY22 until now, a 2.5x growth as compared to sales figures of commercial EVs from last year for the same time period. Hyundai Motors India announced that it was manufacturing a new, more affordable EV for the Indian market. The EV would be an addition to its larger plan to invest USD 512 million in the country to launch six EV units by 2028. Even with all this recent movement, there is a significant Tesla-shaped hole in the sector that is hard to ignore. Source: EVreporter Tesla India’s timeline Musk’s initial promise to start selling in India by 2021 has fallen flat. Tesla spent the whole of last year lobbying with the Indian government to help cut down import tax on their EVs. The automaker’s India business hired Manuj Khurana, a policy and business development executive, in March last year. After months of stalemate over an import tax rate as high as 100 per cent, Musk sent out a tweet last month that confirmed he did not agree with the demands of the Indian government that the automaker must commit to manufacturing its EVs locally to avail tax concessions. On June 15th, Khurana, the first employee of Tesla India, resigned from his position, effectively sounding the death knell on the company’s future in the country. Tesla, the world’s market leader in EV and the most valuable automobile manufacturer, will now have to forego its largest untapped market. Musk has openly expressed his inhibitions around the tax regulations surrounding the country’s EV segment. The Indian government’s heavy push behind its Aatmanirbhar Bharat agenda had forced it to slap an exorbitant 60 per cent import duty on cars that cost less than USD 40,000 and 100 per cent tax on those that cost more than USD 40,000. Musk was aware that these pumped-up prices would have an adverse impact on sales of their EVs in a country that anyway wasn’t ideal for the luxury car segment. By August, there was some traction – four of Tesla’s models received certified approval for being ‘roadworthy’ in India. But the tax issue still remained unresolved. Tesla’s calls for a reduction in taxes were met with a mixed reaction. While other foreign automotive companies like the South Korean carmaker Hyundai and German brand Volkswagen backed the tax cut, domestic brands like Mahindra & Mahindra sided with the interests of local manufacturers, arguing that a tax cut for foreign EV brands would hurt investment and lead to stiff competition. In August, Khurana sat in a closed-door meeting with the PM but evidently with no positive outcome. Source: Backlinko Tesla’s production problems This is not the first of Tesla’s troubles with its manufacturing units. Tesla has struggled with optimising its production because Musk has been intent on manufacturing all the car’s parts independent of other suppliers since 2017. While this gives the brand more control over its production and removes any risks associated with third-party suppliers, the highly automated manufacturing process makes it more rigid and less accepting of any changes. Just as Tesla had managed to increase its output over the years with great effort, the pandemic threw a spanner in the works, disrupting its delicate supply chain. The cost of raw materials for EVs had already risen with the Russia-Ukraine war since Russia was a major exporter of nickel, a key component in EV batteries. In a press statement that came along with its first-quarter results earlier this year, the company revealed that while the company had avoided a close brush with bankruptcy, its problems with increasing manufacturing efficiency had stayed. “Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022,” it warned. Source: InsideEVs The company’s Shanghai factory was shut down for almost a month due to the COVID19 lockdown. According to data released by the China Passenger Car Association or CPCA, Tesla’s sales in China also dove by 98 per cent in April compared to just a month earlier. The factory manufactured 10,757 units by April-end and sold a mere 1,512 units as compared to March when it sold 65, 814 units in China. Last month’s numbers were Tesla’s lowest in sales since April 2020. The EV manufacturer’s long fight with the German trade union to get its Berlin Gigafactory up and running has been marred by recent news that the factory is struggling to hire workers due to low wages. Tesla’s newly opened Gigafactory in Austin, Texas, is also just ramping up production. Last week, Musk conveyed his frustrations with Tesla’s production explicitly in a video interview, saying, “Both Berlin and Austin factories are gigantic money furnaces right now.” Is it really Tesla’s loss? Given the global context of Tesla’s manufacturing abilities at the current moment, it seems prudent for Musk to back off the Indian market at the moment. It is also unlikely that Tesla will budge from its position of not partnering with other companies to manufacture its vehicles. Last year, the American-Made Index published by Cars.com placed Tesla’s Model 3 on top of the list, ahead of the Ford Mustang. Tesla’s Model Y stood in the third place while Jeep Cherokee took the fourth spot, and the Chevrolet Corvette took the fifth. In January this year, Musk touted his company’s American-made roots in a very public attack on US President Joe Biden. After a meeting with executives from Ford and GM, Biden declared that the future for EVs would be built by American carmakers. To this, Musk simply responded on Twitter, saying there was one all-American EV carmaker that he had prominently ignored – Tesla.
Tesla has struggled with optimising their production because Musk has been intent on manufacturing all the car’s parts independent of other suppliers since 2017.
Tesla spent the whole of last year lobbying with the Indian government to help cut down import tax on their EVs.
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Poulomi is a Technology Journalist with Analytics India Magazine. Her fascination with tech and eagerness to dive into new areas led her to the dynamic world of AI and data analytics.