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India Wants to Lure Tesla from China but It Won’t Be Easy

tesla

Earlier this year, Tesla set up operations in India and reportedly wants to import and sell its electric cars in the country. India meanwhile wants to lure Tesla to start producing its cars in the country.

China was the first location that Tesla choose for its Gigafactory outside the home market of the US. The company started delivering China-made Model 3 cars to Chinese consumers in 2019 and scaled up production last year.

Tesla’s China Gigafactory

Tesla set up the China Gigafactory in record time and the pace put even automakers that have over a century of experience behind them to shame. In 2019, when Musk visited the China Gigafactory, he said that the team there had done a “mind-blowing” job. Musk added, “I’ve never seen anything built so fast in my life before, to be totally frank. And I’ve seen some crazy things … I really think China is the future.”

Tesla has moved up the manufacturing learning curve very fast. In 2018, it looked that Tesla might not be able to live up to the expectations amid teething production problems. The company’s CEO also admitted to the “manufacturing hell” as it was ramping up the production of Model 3.

China gave sops to Tesla

China gave several sops to Tesla that were unheard of in the communist country. To begin with, Tesla was allowed to set up independent operations in the country. Prior to Tesla, all other global automakers that set up operations in the country had to do so by the way of joint ventures with domestic Chinese companies.

Apart from this, the country helped Tesla get loans at attractive rates. While Tesla is now a cash-rich company with negative net debt, it was in need of funds when it was ramping up operations at the China Gigafactory. The country also provided quick approvals for the construction of the plant.

NIO

China also exempted Tesla cars from the 10% purchase tax. The move made Tesla cars more affordable in the country. If this wasn’t enough, it made Tesla cars eligible for the government subsidies. The subsidy is reserved for only domestic Chinese companies. Incidentally, even NIO cars qualify for China’s electric vehicle subsidies.

While NIO cars don’t qualify based on the vehicle price, the country created a special category for battery swapping technology that makes NIO also eligible for the subsidy. China sees the electric vehicle industry as a key part of its “made in China 2025” plan and had even bailed out NIO when it looked that it would go bankrupt.

India lures Tesla

Meanwhile, India’s transport minister Nitin Gadkari has said that the country is ready to roll out the red carpet for Tesla. “Rather than assembling (the cars) in India they should make the entire product in the country by hiring local vendors. Then we can give higher concessions,” said Gadkari without specifying the details.

He added, “The government will make sure the production cost for Tesla will be the lowest when compared with the world, even China, when they start manufacturing their cars in India. We will assure that.”

Would Tesla make its cars in India?

Gadkari termed Tesla making its cars in India a “win-win situation.” However, things are not that simple. Firstly, the Indian automotive market is only about 10% of the Chinese automotive market which happens to be the largest globally. Talking of new energy vehicles, over 1.25 million new energy vehicles were sold in China in 2020 as compared to only 5,000 electric cars in India.

Indian automotive market

Another aspect to consider would be that Tesla cars might be too costly for the majority of Indians. Japanese automaker Suzuki is the market leader in India and sells almost every second car in the country. Among other things, the low-price range of its cars makes Suzuki popular among Indian consumers.

If anything, India has been a tough market for global carmakers. General Motors has already exited the country while Ford called off a joint venture in the country earlier this year. Even after spending decades in the country, companies like Toyota and Volkswagen have a minuscule market share.

What would India need to do to lure Tesla?

India would have to offer massive sops including financial incentives to lure Tesla. The country would have to project itself as an export destination as the domestic market would not be enough for Tesla to set up a manufacturing plant in India. Some of the global automakers like Ford already use the country as an export destination.

Meanwhile, while India has been trying to lure companies that left China amid the US-China trade war, it hasn’t had much success. Companies exiting China have instead opted for other Asian countries like Vietnam and the Philippines.

While India boasts of a strong service sector and its technology companies are very competitive globally, the same is not true for manufacturing where it lags behind other Asian giants. Overall, it would be tough for India to get Tesla to set up its manufacturing plant in the country.

How to invest in Indian stocks?

Some of the brokers let you trade in Indian stock markets. You can select from any of the best online stock brokers. You can also invest in emerging market indices through binary options. There is a list of some of the best binary options brokers.

If you are not well versed in investing in stocks and still want to have exposure to Indian stock markets you can consider ETFs. There are ETFs that give you exposure to a basket of emerging market stocks as well as those focused on Indian stock markets

By investing in an ETF, you get returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs.

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.