Tesla might well be a synonym for disruption.Serbian-American inventor Nikola Tesla’s alternating current induction motor, patented in 1888, showed how electricity can be safely transmitted across long distances. This invention made an immeasurable contribution to human advancement. In 2008, California-based Tesla Inc demonstrated that an entirely electric and practical luxury car was achievable. This technology has changed the dreams and aspirations in passenger mobility. Now, as the Elon Musk-headed car company is headed towards India — one of the world’s largest markets — the question on everyone’s mind is how will Tesla disrupt the Indian market.
Amitabh Kant, the CEO of NITI Aayog, says Tesla would do to automobiles what the iPhone did to phones. When Apple launched the iPhone in 2008, it created a whole new market for smartphones. Tesla is on the same trajectory, he avers. Tesla’s entry would create a network of component manufacturers and suppliers and build an entire electric vehicle (EV) ecosystem, he adds.It is unclear if Tesla cars will come in as completely built-up (CBU) units, which attract higher duty, or as completely knocked down (CKD) units, which involve reassembly in the destination country. This decision would affect the pricing. What is fairly certain is that Telsa will bring in the entry-level Model 3. This is likely to cost Rs 60-70 lakh, to compete with the Mercedes E or a BMW 5 series in the midsize luxury space.Sources say Telsa may look at bringing in the Model 3 in the CKD form. If it decides to bring the more expensive Model S or the Model X, its luxury SUV — both expected to cost around Rs 1.5 crore — that might be as CBUs.
This puts the cars in the domain of the wealthy, say experts, which means there won’t be enough volumes for Telsa to justify building a plant here now. The spare capacity in Tesla’s China plant might be able to fulfil demand in India, they say.Tesla did not respond to multiple requests for comment. The company is in the process of being incorporated in Bengaluru and is looking at manufacturing locations in India — possibly in AP or Gujarat, say sources. As for its offering in India, BVR Subbu, former president of Hyundai Motors India, says Tesla will have to match the expectations and refinement that consumers in the high-end segment are used to.
“If Tesla brings in the smaller Model 3 at a price point of the BMW 5 Series or Mercedes-Benz E-Class, it could fall short in terms of the refinement of the German duo that buyers look for and are accustomed to. And most BMW 3 Series or Mercedes C-Class buyers could find Tesla a bit of a stretch in affordability. Bringing the Model S at a price point above the BMW 7 Series or Mercedes S-Class would also be a challenge. Owners of cars in that category typically are driven by chauffeurs. So how will they benefit from the superlative interactive cockpit experience of the Tesla,” asks the auto industry veteran.
Another challenge for Tesla, as Kant and analysts point out, is that India is a predominantly two-wheeler market where scooters and bikes outsell four-wheelers nearly 10:1.
The EV maker will have to position itself carefully in price-sensitive India, says Varun Dubey, head of marketing, Ola Electric. “When we look at what will move the needle towards faster adoption of electric, our view is that companies will need to get the performance and price equation correct.” Tesla’s entry will coincide with the launch of luxury electric cars from several global majors who are familiar with the country. Companies such as Mercedes India are unperturbed by the possible challenges from the California auto company. “The entry of any new brand, whether it is in e-mobility or any other segment, creates customer excitement, adds to the market and is beneficial to the overall segment and end customers. We do not see any disruptions in our business as such,” says Martin Schwenk, MD of Mercedes-Benz India.
Experts, however, say the country might have enough space to accommodate many such players. Schwenk adds: “We are confident luxury EVs will start gaining volumes with the development of charging infrastructure across cities and the incentives the government may offer to encourage local manufacturing.
”Now, the largest selling electric four-wheeler in India is the Tata Nexon, priced at Rs 13.99 lakh. It sold 2,985 units in 2020. In the luxury space, Mercedes occupies this spot. It launched the EQC in October at Rs 1.04 crore, and sold 57 units. While pricing will keep Tesla cars out of reach of the majority, experts say a big breakthrough in battery technology could change that. At the Tesla Battery Day event on September 22, Musk announced that a $25,000 (Rs 18.2 lakh) electric car would come sooner. That car could be a game changer if priced correctly for the Indian market, say experts.
Tesla’s battery packs cost about $156 per kWh in 2019; which could come down to $70-80 in the next few years, cutting costs per vehicle. The battery, which constitutes one-third of the cost of an EV, is evolving rapidly. In the last 10 years, global prices of batteries have fallen more than 90%. Adequate and widespread charging infrastructure is another important factor that can make EVs more competitive with their gas-guzzling cousins. For perspective, the Model 3 has a range of 423-568 kmph per charge. Tesla takes 6-15 hours to charge up.India has been a laggard in driving fleet electrification, says Ravi president, Jato Dynamics. China, for example, has developed high-end technology in this space. It controls raw material, manufacturing and cell capacity in the battery space. The country has more than 30 million electric two-wheelers. Last year, China sold 1.24 million battery electric and plug-in hybrid vehicles, up by 14%. India saw sales of about 8,000 electric cars in six years. Beijing has used various strategies such as incentives and zoning restriction laws to drive EV adoption, adds Bhatia.According to a McKinsey & Company report, India’s electric vehicle adoption rate is less than 1%. The government has targeted a 30% EV adoption rate by 2030. But the focus of this plan is powered primarily by electrification of two-wheelers, three-wheelers and commercial vehicles. The government gave significant tax rebates, and approved the Faster Adoption and Manufacturing of EVs in India Phase-2 (FAME-2) plan, with an allocation of Rs 10,000 crore for three years till 2022. There is also a plan to set up 2,700 charging stations across India.Tesla’s entry should be seen in the light of these developments and not in a silo, insist experts. It would have a huge cascading impact on multiple sectors.“Global OEMs investing in India puts our massive talent in engineering and manufacturing into global limelight,” says Mahesh Babu, MD & CEO, Mahindra Electric Mobility. “This will further help in popularising electric vehicles in India and help improve the overall supply chain. We believe India’s EV growth story will be led by multi-modal mobility solutions like electric three- and two-wheelers and other mass transportation segments before the demand in personal mobility picks up.”
Indians dying to get their hands on a Tesla might have to wait longer as the product’s demand outpaces its production. The company has already disrupted the vehicle sales model, which is dependent on dealerships and a well-defined distribution system. The world’s largest electric car company follows the direct sales method through company-owned stores. It does not have dealers.
This, Tesla claims, gives customers a better buying experience and reduces the price for the end-consumer. The company also sells online. Another change in operations is in servicing.Electric products require 10% servicing as compared with the conventional models because of fewer moving parts. “Tesla will not need dealerships or even too many service centres,” says Nikunj Sanghi, an automotive dealer based in Alwar selling passenger vehicles. But in India, he adds, they will need dealerships to hold some inventory.
Considering the geographical spread of the market and real estate prices, it would be impractical to set up company-owned dealerships across the country. A national network is required to tap markets across the country, says Arun Malhotra, former India head of Nissan.Would the company that has earned a reputation by taking the challenging and unusual path easily surmount these challenges and set off an EV revolution in India?
Tesla is on the same trajectory as the iPhone: Amitabh Kant, CEO of NITI AayogAmitabh Kant, CEO of NITI Aayog, tells Lijee Philip in an email interview that Tesla’s entry into India will stimulate R&D and manufacturing in multiple sectors. Edited excerpts:How will Tesla disrupt the EV space in India?
Tesla’s entry would be a pivotal point in nudging the industry towards electric vehicles. It would make business sense for Tesla to make In India at the earliest, creating a network of component manufacturers and suppliers. This would give a boost to the EV ecosystem.What will be the EV landscape in India in, say, 5 years?India moves on two- and three-wheelers, which constitute nearly 80% of the total vehicle sales. In the next five years, the country would see a huge proliferation of electric two- and three-wheelers. Battery technology is evolving rapidly. Global battery prices have fallen more than 90% in 10 year. This will also greatly propel EVs in India.
Do you see India fast turning to be an R&D hub for EVs?
Definitely. The electrification revolution across the world was mainly driven by cars, while India’s vehicular fleet is driven by two and three-wheelers. OEMs would have to do indigenous research to electrify the categories suited to Indian conditions. This would require a huge investment in R&D. We are already seeing a lot of indigenous research.Do you see Tesla’s entry affecting any companies’ game-plan? Or will it only affect the luxury car segment?
It would have a huge cascading impact on various sectors. Think of 2008, when the iPhone was launched by Apple, it was, and still is, a premium smartphone. But what it did was to create a whole new market for smartphones. Even though the present global market share of iPhones would be small, the disruption it created in the market was huge. Tesla is on the same trajectory. It has caught the imagination of masses across the world. In India, this would have a huge impact on two and three-wheelers and bus segments.Will the EV space then see consolidation in 3-5 years?
It is still at a nascent stage. In the medium term, multiple OEMs, startups and other players would enter the market. Since this has huge and vast untapped market potential, I do not see much consolidation happening in the medium term.
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