Tesla Needs Mega Bucks To Fulfil Big Dreams

Tesla Needs Mega Bucks To Fulfil Big Dreams

The future lies in green energy but investment in renewable energy sources requires mega bucks and the harnessing of science-based innovations on a mega scale

Shubh AroraUpdated: Wednesday, June 05, 2024, 10:31 PM IST
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The Tesla Cybertruck | Wikimedia

After all the hype, Tesla seems to have put its plans to come to India in the near future on hold. Its CEO Elon Musk was expected to make a high-profile trip to India in April, and was expected to announce an investment of $ 2-3 billion dollars. This came to an abrupt halt when he announced a postponement of his trip due to “heavy obligations”. What were these pressing work commitments that Musk could not take time off for a two-day trip to meet the prime minister of a country which offered a huge market for his Electric Vehicles (EVs)?

Musk may indeed be the richest man in the world but he has been under tremendous pressure of late with Tesla shares having shown a 40% downward trend in the last few months. He is locked in fierce competition with Chinese cars forcing him to announce price reductions of three of his five models being sold in the US, and then going on to slash prices of his cars being sold in China, the Middle East, Africa and Europe. But the price cut did not result in an increase in car sales

Tesla cars have always been on the expensive side. Even the cheapest car being sold in the US costs $ 42,000 (Rs 34.5 lakh). If this vehicle was to be imported in India, a 100% duty would raise its price to $ 80,000 (65 lakh) making it unaffordable except for the very wealthy. The price cuts have not materialised in increased sales and Tesla’s global vehicle inventory rose to 28 days this quarter, a huge increase from the 15 days at the end of the last quarter. Tesla sells cars directly to customers having done away with the dealer network.

He can console himself with the knowledge that other new vehicle inventories in the US are now having to deal with a 72-day quarter. But troubles come in bucketfuls. Tesla had to recently recall all 3,878 Cybertrucks because the US safety regulator authorities found it suffered from a faulty accelerator pedal. Not only did this recall carry with it a loss of reputation but correcting these accelerator pedals is going to cause a further dip in his pockets.

Tesla is facing another major problem and that is what direction the company should take in the coming years. Should it go in for a robotaxi or else focus on a more affordable $25,000 model car called Model 2 that Musk had promised would go in for production by the year end? Most investors believe Model 2 is the route Musk should take in order to become more competitive — a step that will also help infuse confidence in his customers — but Musk, with his propensity for taking risks, seems to have set his heart on a robotaxi even though he realises only too well that this is an unknown territory and several braveheart companies including Uber chose to withdraw from this autonomous vehicle unit sector following a fatal collision of their vehicle with a pedestrian. Licenses in this field are being held up in the US because of accidents caused by these vehicles with federal agencies no longer willing to go soft on these new technologies which include Full Self Driving.

What, then, does Musk bring to the Indian table and how will his cars help transform the Indian market? India already has a strong auto component industry with Tesla sourcing components worth &1.5 to $2 billion from India annually. Tesla EV cars have a very big driving range most Tesla cars will offer more than 500-700 km driving range so the main concern of range anxiety among EV owners in India will be addressed with Tesla cars.

Tesla’s entry into India rides on the question of whether Musk will set up his own manufacturing unit. Unlike several US companies that have outsourced production to China, Musk companies are producing car lithium-ion batteries in his giga-factory facility in Nevada and other locations in US. Automobile analysts in India believe that if he can find a way to localise battery production in India, he will change the rules of the game for the premium market section of EVs as there is a potential for a Rs 25 to Rs 30 lakh car to do well in the Indian market.

Musk needs to set up a manufacturing facility in either India or South Korea in order to take advantage of being a cost leader in this global electrification journey. At present he has six manufacturing facilities — four in the US, one in Shanghai and one in Berlin. The Indian government has mandates in its policy for EVs that he will get 50% domestic value addition within 5 years at the maximum to quality for the lower import duty rate of 15%.

Companies that meet these requirements will be allowed to import 8000 EVs a year at the lower import duty on cars costing $ 35,000 and above. At present India levies a tax of 70-100% on imported cars depending on their value.

A potential Tesla entry in India will pit Tesla against domestic automakers including Tata and Mahindra. Tata has a head start with its vehicles presently cornering 80% of the domestic EV market. Global manufacturers so far believed that India was not ready for world class technology and hence were selling their hand-me-down technology to us. This would change with the entry of Tesla.

India is presently the fourth largest car market in the world, having sold 23 million cars in 2023, and it is growing at a rapid rate. In order to combat climate change, the Indian government is pushing to increase EV penetration so that by 2030 it becomes 40% for buses, 30% for private cars, 70% for commercial vehicles and 80% for two wheelers.

There is no doubt that India poses multiple challenges for Telsa since its remains a small luxury car market which has still to expand its base in a major way. The only way it can do so is by localising production in order to make its cars more affordable, as this alone will pave the way for higher sales.

Besides India being an important market for his social media platform X, Musk is also making a major push for Starlink, a project run by his company Space X, which aims to offer high speed internet using a constellation of thousands of earth orbit satellites. He has applied for a license and if he gets it, his will become the third company after Jio Satellite Communications and One Web to get this license.

But all these ambitious projects need a green signal from his investors in the US, and that, for Musk, remains a major challenge. The future lies in green energy but investment in renewable energy sources requires mega bucks and the harnessing of science-based innovations on a mega scale. Musk has always been a gambler; will his Indian gamble also pay off?


The writer is an entrepreneur and consultant focused on IT in hotels and corporates, and follows car and tech trends across the globe



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