Modi’s Message To Elon Musk: You Can’t Double Date India And China

The promise and charm of Tesla founder Elon Musk is evident from the fact that he can move about anything in this world. From valuation of startups, to the price of cryptocurrencies and even politicians (Indian) who want to take on the Centre. This is perhaps the reason why, like a Hollywood star, everyone hounds him on social media, while he ignores them or at best, maintains strategic silence. 

Politicians from four Indian opposition states took to Twitter over the weekend, to invite Tesla Inc to their geographical boundaries.

“I invite @elonmusk, Punjab Model will create Ludhiana as hub for Electric Vehicles & Battery industry with time bound single window clearance for investment that brings new technology to Punjab, create green jobs, walking path of environment preservation & sustainable development,” Tweeted Punjab Congress President, Navjot Sidhu.

Sidhu took to social media in response to a tweet by Musk which read “Still working through a lot of challenges with the government.” Musk was referring to the Centre’s refusal to reduce import duties on the import of Electric Cars in India. 

Other ministers who have made similar overtures to Musk include Industry & Commerce Minister of Telangana Rama Rao, 

West Bengal minister Md Ghulam Rabbani and Maharashtra Minister Jayant Patil. 

Interestingly, despite all the pep talk on Twitter, none of the states under the Indian federal structure have the right to bypass the Centre in inviting a foreign company to set up shop in India. But since politicians play to the galleries, technicalities don’t matter.

What’s important here though, is to understand whether India actually needs Tesla. And even if the Modi government agrees to Musk’s demand of reducing import duties on EVs in India, will Musk be interested in ‘making in India’?

From Make In India To Let Me Import From China

Tesla has been at the forefront of the EV revolution in the world and Prime Minister Narendra Modi visited Tesla’s factory in Fremont, California, in 2015. At that time, both China and India had invited Tesla to set up its first manufacturing plant outside of the US. Both India and China have been trying to reduce their carbon emissions from the automobile sector, by creating an ecosystem for EVs. After showing initial interest in India, Musk reached an agreement with China to set up its factory in Shanghai in 2017. By October that year, the company had purchased land on the outskirts of Shanghai for $140 million, and in January 2020, the company rolled out its first  China-made Model 3 sedan. 

Soon after its decision to set up the factory in China, Musk’s pitch changed and he started demanding a relief on imports for his company to test the Indian market.

Musk has also been reported to argue that India currently doesn’t have the ecosystem that could support its EV sales in India. If India has to give in to Musk’s demands, it will have to do away with the current import duties, which are pegged at 60 per cent on electric vehicles that cost $40,000 or less, and 100 per cent for those priced anything above. Given Tesla’s pricing, their cars fall in the 100 per cent import duty bracket, making it difficult to sell in India. 

Why India Is Not Desperate For Tesla

The fact that Tesla makes only high-end cars, even if India slashes import duty for the company, it will be catering to a very small section of the Indian car market. The highest number of cars sold by luxury car makers (cars upwards of Rs 30 lakh) in India in the last decade was 40,340 units in 2018. This number was less than 2 percent of 22,18,549 passenger cars sold that year. 

In the same year, China sold 2.82 million cars just in the luxury segment, accounting for 13 per cent of its total market. It’s this market, and not any kind of incentive that forced Tesla to choose China over India. 

In India, currently the total penetration of EVs is around 1.3 per cent of the total car market, and if it has to go up to 30 per cent of total cars sold in India, by 2030 - as per the Centre’s target- the companies that need incentives (even for imports) are the ones that play in the small mid-level car segment. The government has already announced PLI (Production Linked Incentive) schemes worth Rs 44,000 crore for automobile and battery manufacturing in the country. If Tesla is allowed to sell its cars, without having to set up its manufacturing plant in India, it will go against the logic of asking other companies to invest in India, when they can import from outside (China provides high incentives to manufacturers) and sell in India.

Apart from the PLI scheme, India has already reduced GST on EVs to 5% as compared to 43% ICE cars, making it lucrative for automobile players in the category to have cost advantage over others in the market. Since liberalisation, automobile is one sector that has made India self-sufficient, and there’s no reason why India should be trying to create an import market for luxury cars that only add to the country’s current account deficit by importing China-manufactured EVs to India.