Tesla's highly anticipated entry into the Indian market has set the stage for significant disruption, especially with its plans to launch entry-level electric vehicles (EVs) priced under Rs 25 lakh on-road. The move has garnered attention, but industry reports suggest that the impact on major Indian automakers like Mahindra & Mahindra might be minimal due to the overall low penetration of EVs in India compared to markets like China, Europe, and the US.
Despite this, the entry of Tesla, particularly in major cities like Delhi and Mumbai, is expected to affect the competitive landscape. Tesla has already begun its hiring process in India, marking an important milestone toward its market entry. On February 18, the company posted a job listing on LinkedIn for a Consumer Engagement Manager in the Mumbai Metropolitan Region, signaling its preparations to cater to Indian customers.
Impact of Tesla's Entry on Indian Automakers
Recent reports suggest that the decline in Mahindra & Mahindra’s stock prices is already reflecting the anticipated impact of Tesla’s arrival in the Indian market. Tesla’s strategy of offering entry-level EVs could attract some market share, but the Indian automotive industry remains less affected by the shift to electric vehicles than regions like Europe, the US, or China.
India’s EV adoption rate is still in its early stages, with electric vehicles accounting for a small fraction of overall car sales. As such, even with Tesla's entry, the broader market impact on established automakers might not be as significant in the short term.
Manufacturing in India: Key to Tesla's Affordability
To make its cars more affordable and scale up operations, Tesla will need to establish a local manufacturing facility in India. While the company’s plans for an entry-level EV below Rs 25 lakh are promising, reports indicate that the pricing could still be out of reach for many consumers without local manufacturing. Even with reduced import duties—potentially as low as 15% on up to 8,000 units per year—Tesla will need to make a substantial investment to produce cars locally and benefit from the duty reduction.
Tesla could take advantage of India’s EV policy, which offers a lower import duty on up to 8,000 units annually if the company invests over Rs 4150 crore in setting up a local facility. This would help Tesla bring its vehicles to market at more competitive prices, making them accessible to a broader segment of Indian buyers.
The Pricing Dilemma: Indian Consumers’ Sensitivity
A major challenge for Tesla will be the price sensitivity of Indian consumers. The Indian automotive market has shown that price plays a crucial role in consumer decisions, particularly in segments like motorcycles, where Harley-Davidson’s X440, priced 20% higher than the Royal Enfield Classic 350, only manages to sell around 1,500 units monthly. Meanwhile, the Classic 350, priced lower, sells approximately 28,000 units per month.
This stark contrast underscores the importance of pricing for Indian consumers, especially in a price-conscious market. Tesla may face difficulties gaining traction if it cannot offer its cars at competitive prices compared to established brands.
Ultimately, Tesla’s success in India hinges on its willingness to invest heavily in local manufacturing. Without this, even with reduced import duties, Tesla’s vehicles may remain unaffordable for the majority of Indian buyers. While the company’s entry into the market is exciting, the challenge will be to make its EVs accessible and competitive in a market that is still evolving in terms of electric vehicle adoption.
In the coming months, as Tesla begins its operations in cities like Delhi and Mumbai, it will be interesting to see if it can overcome these challenges and capture the growing but still limited market for electric vehicles in India.
