Delayed Entry of Tesla in India and How it will Impact the Energy Sector

Tesla is a household name in the United States. If you don’t own one of their electric cars or home battery systems, you might know someone who does. If not, you’ve definitely heard about them in the news and on technology or business blogs. This tech giant has been slowly expanding into countries around the world, save one — India.

Though excited to begin production of electric cars in the country to aid in India’s goal of improving their use of renewable and sustainable energy, CEO Elon Musk has hit some roadblocks. Why has Tesla’s entry into India been delayed and what impact could that have on the country’s energy sector?

Committed to Renewable Energy

In 2015, India made a promise — to improve their use of renewable energy by adding a total of 175 gigawatts of power in various sustainable forms, namely solar, wind, bio-energy, and hydroelectric power, over the next four years. Currently, the country has 5.5 gigawatts of wind energy alone, far exceeding its projections and making it the fourth largest producer of wind power in the world, behind China, the United States, and Germany.

This is an enormous goal to accomplish in just four years. The United States currently has about 100 gigawatts of solar and wind power combined, but it’s taken decades to reach that point.

Tesla in India

In accordance with India’s green energy plans, Tesla wanted to bring its electric cars into the country, replacing many of the gasoline or diesel engines that are currently in use.

Tesla isn’t the only name in electric vehicles in India. Mahindra Electric manufactures a $10,000 electric car that is being produced in India, much more affordable than the current Tesla’s on the market today.

One of the biggest challenges for Tesla right now is the Indian law that requires that any manufacturing operations get at least 30 percent of their components from local sources. The infrastructure just isn’t in place for that sort of local sourcing. Tesla would need to establish relationships with tech manufacturers already in the country before they could consider building a manufacturing plant in the country.

While it is possible to apply for a waiver to avoid the 30 percent locally sourced requirement, the Indian Government has turned down most of the recent applications from big name brands like Apple.

One way to avoid this would be to manufacture the electric cars somewhere nearby, such as Shanghai, which doesn’t have those same requirements and import the already completed cars into India. This does present another type of problem — it makes it harder for India to become more self-sustaining. The country is already one of the largest importers of oil and other products in the world.

The goal of the locally sourced rule is to keep production in the country while allowing India to become self-sustaining and eventually to export more than they import.

It’s All about the Money

Tesla’s are expensive cars. In the United States, they often top $50,000 to $75,000 depending on the model. In India, even the most affordable model — the newly released Model 3 — will be in the same price class as Audi, BMW, and other luxury cars.

This isn’t necessarily a bad thing. The luxury car market in India is expected to increase by 10 percent this year. Next year looks even better, with experts predicting that the market will grow upwards by 40 percent. This makes it the perfect time to bring Tesla into India. Not only does it give Musk another year to manage his resources if he decides to set up a manufacturing plant within the country, but it almost ensures that sales will be high.

Tesla will continue to expand into the global market — this delay in the entry into India is just one more hurdle to overcome.

Amplus Solar

September 29, 2017