Will Tesla be able to produce a Rs 20 lakh EV for Indian masses?

Elon Musk appears poised to enter the expanding Indian electric vehicle (EV) market in the New Year, giving the masses hope that owning a cheaper Tesla Model 3 may soon be attainable with local manufacturing of battery components and a robust EV supply infrastructure.

The "preferred destination for Tesla's manufacturing plans" has reportedly been identified as Gujarat, India, due to its advantageous business climate and strategic position, and the world's wealthiest man is reportedly scheduled to visit the city at the "Vivant Gujarat Global Summit" from January 10th to 12th.

Neither the government nor Musk have officially announced this huge news, but it is expected that Musk will announce manufacturing in India at the showpiece event, with Prime Minister Narendra Modi in attendance.

Prices for Tesla vehicles are reportedly very consistent worldwide, with the most affordable Model 3 starting at $40,240 (or over Rs 33.5 lakh) at the moment.

The estimated cost of importing this model into India is 60–66 lakh rupees. Electric vehicles (EVs) costing more than $40,000 are subject to an import tax of 100% in India.

The electric vehicle manufacturer intends to establish its electronics and auto parts chain in India, taking advantage of subsidies and tax benefits; if everything goes according to plan, it can supposedly create 5 lakh electric vehicles per year, with prices starting at Rs 20 lakh.

While the Indian government has stated that it will not subsidize electric vehicle imports, rumors have circulated that Tesla may be allowed to import finished vehicles at a concessional import duty of 15-20%, a substantial decrease from the existing 100 percent duty.

"This import duty can be eliminated by setting up local production, paving the way for a cheaper, affordable Tesla car," said Soumen Mandal, a senior analyst from Counterpoint Research, speaking to IANS.

Alternatively, if Tesla models made in India were less feature-rich than their US-made counterparts, we could achieve this price decrease.

"For instance, it may be possible to combine Advanced Driver Assistance System (ADAS) Level 2 with some of the hardware needed for Full Self-Driving (FSD)," Mandal explained.

The power of the electric motors and the capacity of the battery pack could be below 50 kW if they are imported from China.

The researchers also suggested using a smaller center display and reducing the in-vehicle electronics.

If the government is going to think about incentivizing Tesla, it will reportedly be for all EV manufacturers including international entrants.

In an effort to break the impasse, Tesla representatives have met marathon sessions with Indian government officials and business leaders in the past few months.

Pricing for a Tesla in India might be as low as Rs 20 lakh, depending on a number of factors such as the availability of favorable government subsidies and Tesla's capacity to achieve supply chain and cost savings through the effective utilization of local manufacturing. In the end, Tesla's business model will dictate price decisions, says Prabhu Ram of CyberMedia Research's Industry Intelligence Group (IIG).

There is a lot of competition in the car industry. Policy incentives could give Tesla a leg up in the market, but they would also encourage the established players in the automobile industry to increase their investments and expand their electric vehicle lineup, as Ram pointed out.

By 2030, the electric vehicle market in India might reach over 40% penetration and generate $100 billion in sales.

A recent analysis by Bain & Company and Blume Ventures predicts that the two-wheeler (2W) and three-wheeler (3W) categories are predicted to experience significant adoption rates of over 45% and 35%, respectively, while the four-wheeler (car) penetration is projected to reach over 20%.

"We anticipate that India will rapidly emerge as a production center for small electric vehicle models, with pricing beginning at Rs 20 lakh," Mandal stated.