Tesla Cars Set to Enter Indian Market: Analyzing Competition and Elon Musk’s Advantage

Over the past few years, Tesla has expressed interest in entering the Indian market, hindered mainly by steep import duties. However, with the recent announcement of reduced import tariffs for Electric Vehicles (EVs) priced above $35,000, provided the manufacturer gives a guarantee of investment of Rs 4,150 crore and sets up the manufacturing plant within three years with 25% localisation and subsequently achieves 50% localisation within five years, it is now presumed that Tesla will finally make its much-awaited India entry.

Speculation is rife about Tesla’s plans for India. For starters, the $35,000 mark means Tesla can start importing all of its vehicles – its cheapest product in the US market is the Model 3, with a starting price of over $40,000.

Tesla currently has a portfolio of four products. We can expect these to come to Indian shores soon to compete in the premium and luxury EV space.

Tesla products are expected to have a price advantage over existing luxury and premium EV players. In the luxury space, players like Mercedes and BMW have already made some investments and it is yet to be seen if they are eligible to avail the import duty benefits in the new scheme.

The Mercedes EV range in India starts at around Rs 80 lakh, while BMW’s cheapest EV iX1 costs around Rs 67 lakh. Pricewise, Tesla vehicles can even compete with products like the Hyundai IONIQ 5, priced at around Rs 46 lakh, and EV 6, which sells for about Rs 61 lakh.

Tesla is expected to import products to India from Germany – the manufacturing of the right-hand drive version of Model Y has already begun at the Berlin Gigafactory. The real story would be Tesla’s entry into the mass market segment.

It has announced Project Redwood, a small mass-market EV proposed to be launched in 2025, and expected to be priced at $25,000 or around Rs 20 lakh. This will drive straight into the territory of domestic EV players like Tata, Mahindra, and even Maruti Suzuki, all of whom have plans to launch EVs at various price points, including the Rs 20-25 lakh segment.

In FY24, the EV market share continued to be in the low single digits (at 2%) but saw a rapid growth of 91% over FY23. India is aiming to achieve 30% EV sales by 2030.

The EV segment in the country is led by Tata Motors with an over 70% market share. One of Tata’s most popular products is the Nexon EV, priced between Rs 14.5 lakh and Rs 19.9 lakh.

Maruti’s hugely anticipated entry into the EV segment – the EVX – is also expected to be priced at around Rs 20 lakh – Rs 22 lakh. On the other hand, it will augur well for Tesla to get access to the Indian market which can be not just a market for its low-cost compact hatch Redwood, but also a manufacturing hub for markets like ASEAN and Lat Am regions.

India exported over 6 lakh cars in FY24. Though there have been media reports of Tesla shunning the small EV project, the company has not confirmed these reports.

Elon Musk took to X, formerly Twitter, to rebut the media outlet that reported it. India will be the fourth country to have a Tesla manufacturing facility.

Tesla is also facing stiff competition from Chinese manufacturers, which with their low-cost manufacturing, offer EVs at much economical price points. In 2023, BYD, the Chinese EV and HEV manufacturer, sold over 60% more units than Tesla.

The India entry will not only give Tesla access to the third-largest automobile market but also help it diversify its location and give it a manufacturing cost advantage.