Will Tesla Ignite India’s Electric Car Revolution?

All eyes are on Tesla, Elon Musk’s electric vehicle maker, as it makes an entry into India, as a fully-owned subsidiary in India, with a registered office in Bengaluru. This is the first step towards the company starting its India operations. Market analysts are watching the Tesla space closely, as it is bound to have an impact in India. 

Reports suggest that the company will begin operations with sales as a first step and then consider assembly. The office is being said to be Tesla’s R&D unit. The Model 3 sedan will be the company’s debutant car offered to Indians car buyers via the completely built unit or CBU process, and is expected to be priced in Rs 60 lakh range.

The impact of Tesla’s entry for India’s auto segment is huge. The automobile segment accounts for 7 per cent of India’s GDP and is expected to touch 12 per cent by 2026. At 2955 units, the electric vehicle segment in India has grown by a whopping 128 per cent in FY2021 as compared to FY2020 at 1295 units.

The electric vehicle segment may get a shot in the arm, which will further lead to a demand for batteries. However, this impact will be in the long term as there are aspects related to affordability and manufacturing/assembly related uncertainties. It needs to be seen when manufacturing facilities will be launched or when charging infrastructure boost occurs. Tesla’s model is priced around Rs 60 lakh, and therefore won’t affect the sales volumes for India’s cars. The competition may evolve with an enhanced charging infrastructure in the long term.

In the long term

Battery manufacturing facilities may receive impetus in the form of government incentives. India has plans to offer $4.6 billion in the form of incentives to companies that have an  interest in setting up battery manufacturing facilities. According to a NITI Aayog draft, India hopes to lower its oil import expenses by nearly $40 billion come 2030, if electric vehicle adoption picks up in the country. Tesla’s entry is certainly a first step in that direction and may have a ripple effect on the economy and India’s dependence on oil imports.  

India also hopes to lower carbon emissions by over 30 per cent, come 2030 and the arrival of a reputed electric vehicle car maker into the country is a step in that direction. 

India has electric vehicle targets of 30 per cent of all private cars, 40 per cent of overall buses, 70 per cent of commercial cars and 80 per cent of all two-wheeler and three wheeler segments by 2030 (as envisaged by the NITI Aayog). In order to achieve these targets, estimates by the CEEW Centre for Energy Finance (CEEW-CEF) suggest that the country opens up an opportunity for investment worth over $180 billion in vehicle production and infrastructure for charging. Charging infrastructure alone would require investments worth $2.9 billion for India to reach its EV targets. 

Another area where Tesla’s entry may see an impact over the very long-term is on the SaaS (software as a service) sector. If the car maker begins manufacturing in India, there may be a demand for ventures providing SaaS platforms for electric vehicle operations. 

Auto, battery stocks see impact

Consequently, this may make an impact on the stock markets as well, with the auto and battery/renewable energy segments seeing demand. Shares of some battery makers on India’s stock exchange NSE saw a jump of 15 per cent on December 29’s intraday trade, giving an inkling about the reaction to the entry of Tesla and the impact it would make on the EV category. The Nifty auto index too gained 1 per cent on January 13. 

Meanwhile, Tesla has seen a nearly 700 per cent rise in the last one year in the US markets and entered the S&P 500 club, with a market value of over $800 billion. It is now the fifth most valuable company on Wall Street and is listed higher than Facebook. 

Conclusion

Tesla’s India entry will have an impact on India’s auto and energy sectors largely but that will be over the long-term as manufacturing and assembly begins in India. Meanwhile, there is a huge investment opportunity for advanced battery manufacturing facilities in India. 

For now, Tesla’s entry paves the way for more competition, growth and investment opportunities in the auto sector, specifically the electric vehicle segment. With greater proliferation of electric vehicles and affordability, there may be a reduction of India’s dependence on oil imports over the very long-term.