June 16, 2017 9:28 pm JST

Tesla Motors seeks duty exemptions to drive into under-prepared India

Experts say brand's status appeal may help sales, but pricing will be crucial

ROSEMARY MARANDI, Nikkei staff writer

Indian Prime Minister Narendra Modi talks with Tesla Chief Exeutive Elon Musk in California in 2015.

MUMBAI -- Even before it has begun selling cars in India, Tesla Motors is planning to build a production facility in the country, sensing a growing demand for "green" cars under the Narendra Modi government's plan to make mobility fully electric by 2030.

The U.S.-based electric car maker is "in discussions with the government of India requesting temporary relief on import penalties/restrictions until a local factory is built," founder and chief executive Elon Musk said on micro-blogging site Twitter.

The penalties or restrictions mentioned might refer to India's requirement that 30% of parts must be locally sourced for global companies opening single-brand retail stores. A similar request has also been made by iPhone maker Apple, which for now is using a workaround by assembling phones at Taiwanese group Wistron's manufacturing plant in Bangalore in southern India.

"Maybe I'm misinformed, but I was told that 30% of parts must be locally sourced and the supply doesn't yet exist in India to support that," Musk had tweeted to a follower on May 22, after earlier expressing a hope to be present in the country "this summer". India's Commerce Ministry, however, said that the sourcing norms apply only to foreign retailers, not manufacturers, and that a foreign investor is permitted to sell in any manner: via wholesale or retail channels, including e-commerce.

Around the world, Tesla only sells its cars through company-owned stores, rather than using the traditional franchise dealership model, as it believes it would not otherwise have the opportunity to educate potential customers about its models.

This gives the U.S. group the motivation to seek the special treatment in India, which would allow it to enter the market sooner and to be able to sell at affordable prices.

Currently imported vehicles draw an import duty of 125% in India, which would vastly inflate the price of a Tesla Model 3, which sells for $35,000 in the U.S. Electric cars from local brand Mahindra and Mahindra start at 500,000 rupees ($7,700). According to media reports, several prominent figures, including Paytm founder Vijay Shekhar Sharma, have ordered Tesla Model 3s, which have yet to be delivered. Currently there is just one electric car brand in India, the Reva e2O by Mahindra and Mahindra. The sales numbers for the company have not been very encouraging in the domestic market, forcing the company to seek opportunities in markets in America and Europe.

In India, where even basic electrical supply is patchy and charging infrastructure is minimal, building these cars in the country does not necessarily mean consumers will come knocking.

According to consulting firm Bridge to India, while the country has a large domestic auto market, it lacks the financial capability and ambition of China and the technology expertise of Japan or South Korea. "There are also formidable infrastructure and financing challenges and addressing these will not be easy."

Room to grow

Still, Mahindra and Mahindra chairman Anand Mahindra has encouraged Tesla to come to India, saying in a recent tweet: "Time you got out here Elon. You don't want to leave that whole market to Mahindra do you?? The more the merrier -- and greener." In contrast to his bullishness on China and perhaps reflecting the question marks over the Indian market, Musk replied with a guarded, "Good point."Some voices in the Indian government which have indicated there will be policy support are giving hope to electric vehicle makers such as Mahindra and Mahindra and to those pursuing hybrid and alternative fuel goals.

The Indian government's National Electric Mobility Mission Plan proposes to deploy 7 million electric and hybrid vehicles on the country's roads by 2020. The subsidy scheme, Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles introduced in April 2015, under which buyers get an upfront discount on e-vehicles, is also revving up sales.Anand Mahindra is especially upbeat that demand for the vehicles as a new mode of transportation will climb as falling battery prices make them more economical.

IHS Automotive anayst Anil Sharma believes that if Tesla wins in India, it will be mostly based on the "status symbol" appeal that the brand carries. However, getting the pricing right would win it more buyers, he said.

Asia300

Mahindra & Mahindra Ltd.

India

Market(Ticker): BOM(500520)
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