Why India is the largest vehicle market that Tesla has failed to tap into yet

Tesla is the world leader among manufacturers of electric vehicles across the globe. And with massively ambitious plans of manufacturing 20 million cars each year by 2030, the company is looking at having a production capability that is double than that of its nearest rivals. China and the United States are its biggest markets but there is little surprise there - both countries are also the global leaders in vehicle sales. But third-placed India is quite the jewel for many automotive brands as well. But why is it not for Tesla, not yet anyway?

India is the largest automotive market which does not have any Tesla presence. Tesla wants to change that. The Indian government has also shown some keen interest. But every time points of friction appear to be on the verge of smoothing out, there is a new rough patch.

As recently as last month, Bloomberg reported that Tesla and Indian government officials are on the verge of bringing in EVs to the country in 2024. Musk, the world's wealthiest person, has long demanded cut in import duty before Tesla models are offered to customers in India. Many see merit in the demand because the import duty rate here is among the highest anywhere in the world - 100 per cent on imported EVs which cost above $40,000. Previous reports highlighted that the Indian government is willing to cut this duty to as low as 15 per cent if a company commits to some local manufacturing.

On Thursday, there was a curt message on the contrary.

The Indian government has clarified it is not considering any proposal for duty concessions and exemption from local value addition for import of EVs into the country. This was stated by Minister of State for Commerce and Industry Som Parkash. Terrible for Tesla? Could be.

Why is Tesla testing Indian waters with caution?

The Indian automotive market is very vibrant but the penetration of EVs into overall passenger vehicles' sales is a mere two per cent. On the flipside, the share of EVs in overall car sales is expected to grow significantly in the years to come. Tata Motors is the market leader at present but others like Hyundai, Kia, Mahindra, Citroen, MG Motor India, Audi, Mercedes-Benz, BMW and Jaguar have at least one fully-electric model on offer. Even Maruti Suzuki, India's largest car manufacturer, is ready with its first entirely battery-powered model for a 2024 launch.

But Tesla wants scale. And this may not be possible in a price sensitive market like India. Not even with the cheapest Tesla - Model 3, priced at upwards of $39,000 or ₹32.50 lakh. Add an import duty of 70 per cent in India and an imported Tesla could be almost as expensive as a mid-level Mercedes, Audi or BMW SUV.

So just make in India, right? Not so simple.

Tesla is building its next mega factory in Mexico's Nuevo Leon and plans to pump in $10 billion here. The hunt for another site continues with India emerging as a potential candidate. But many say the return on investment is likely to take far longer than if such a factory is established in the western world. It is a tricky situation where Tesla wants to experiment and the Indian government wants it to manufacture.

Potential rivals are also not too keen that Tesla is seduced by the government here. Reuters reported last week that Tata Motors is lobbying the government to not allow for import tax cut. This was attributed to sources. And this week, Parkash issued the statement mentioned above.

So the question remains - does Tesla need India or does India need Tesla, or if it can be business as usual for both without any contact?