Elon Musk is not coming to India but be assured that Tesla is (2024)

New Delhi,UPDATED: Apr 20, 2024 14:58 IST

Elon Musk has postponed his two-day visit to India. Originally scheduled to land in the country on April 21, the Tesla CEO was supposed to meet Prime Minister Narendra Modi on April 22, and discuss, among others, the USA-based electric vehicle (EV) manufacturer's plans to enter the world's third-largest car market.

Taking to X, Musk said that his India visit has been delayed due to 'very heavy' Tesla obligations. The carmaker is eyeing an investment of USD 2-3 billion in India to set up a manufacturing plant.

A source told India Today that although Musk's visit has been postponed, talks would continue between the government and the entities closely associated with Tesla and the company itself regarding its entry into the Indian market.

While the location of Tesla's India factory is not confirmed yet, the company is looking at the auto hubs of Maharashtra, Tamil Nadu and Gujarat. Carmakers like Maruti Suzuki, Hyundai, Tata, Mahindra, MG, Volkswagen, Skoda, Nissan, Renault, Citroen, Mercedes-Benz, BMW and Audi have a production facility in at least one of the three states.

In FY24, India overtook Japan to become the third-largest car market globally with the wholesales increasing 8.7% year-on-year (y-o-y) at 4,229,566 units. "Even as the underlying demand drivers remain supportive, the volume growth for the segment is likely to moderate to 3-6% (from an elevated base). The lower growth expectation for next year (FY25) partly stems from waning pent-up replacement demand, which supported the industry over the past couple of years," Srikumar Krishnamurthy, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, told India Today.

The EV market in India is still at a nascent stage with electric models making up just over 2% of the total cars sold. While the government has set an ambitious target of 30% of new car sales to come from EVs by 2030, sector analysts estimate this figure to be anywhere from 15% to 20%.

Tesla's sales took a hit in the March 2024 quarter with car deliveries declining 8.53% y-o-y at 386,810 units. One of the reasons for this is the rising threat from the Chinese auto major BYD, which posted a 13% y-o-y growth in EV sales at 300,114 units during the same three-month period.

BYD is already in India and selling three electric models -- Atto 3, Seal and e6. Another Tesla rival, Vietnam's VinFast has also entered India and is setting up an integrated EV facility in Tamil Nadu as part of a USD 2 billion investment in the state.

In such a scenario, with all the leading original equipment manufacturers (OEMs) entering India and a substantial electric car market expected here in future, the country has naturally become the next destination for Tesla.

To further smoothen the entry of global OEMs, including Tesla, into India, the government announced the new EV policy in March 2024.

According to the policy, a minimum investment of Rs 4,150 crore is required by the EV manufacturers, with a three-year time frame for setting up manufacturing facilities and commencing commercial production. A 25% localisation is expected to be in place by the third year, and this further increases to 50% by the fifth year, to avail the lower customs duty of 15% on completely knocked down (CKD) units for five years. The OEMs can import up to 8,000 EVs every year, having a cost, insurance and freight (CIF) value of USD 35,000 and above, under the policy.

"While there may be limited impact in terms of direct value addition of car volumes sold, considering the overall boost the EV ecosystem will receive with Tesla's entry, we may expect a positive impact on electric car penetration in India. Given the direct and ancillary investments, the overall ecosystem will surely move towards maturity at an enhanced rate, eventually expediating EV adoption," said Saket Mehra, Partner, Grant Thornton Bharat.