(Bloomberg) – Tesla Inc. closes in on an agreement to manufacture electric vehicles in India for the first time and opens up a new growth opportunity after establishing production in China.
Tesla has chosen Karnataka, a southern state whose capital is Bangalore, as its first factory, the state’s prime minister said at the weekend. The carmaker has been negotiating with local officials for six months and is actively considering car collection in the suburbs of Bangalore, say people familiar with the matter.
Tesla did not immediately respond to requests for comment and did not confirm the minister’s statement.
The company is conducting due diligence for office properties in the region and plans to set up an R&D facility, the people said, asking not to be named because the case is private. Tesla has focused on Bangalore because it is shaping up to be a hub for electric cars and space production talents, they said. Tesla has incorporated its Indian entity and registered offices in downtown Bangalore.
CEO Elon Musk confirmed anything other than Tesla would travel into India in January after months of speculation. The world’s richest man on January 13 tweeted “as promised” in response to a report on a Tesla-focused blog that the carmaker was in talks with several Indian states to open an office, showrooms, a research and development center – and possibly a factory.
This revelation triggered euphoria from locals such as Nikhil Chaudhary, a 20-year-old student at the University of Delhi who helped start India’s Tesla fan club in 2019.
Despite the hype, Tesla’s foray into India may prove challenging. The country has not yet rolled out the welcome mat next to EVs as neighboring China, where Tesla set up its first factory outside the US and now dominates sales of premium EVs.
EVs account for about 5% of China’s annual car sales, according to BloombergNEF, compared to less than 1% in India.
“Given the price of a Tesla, Elon Musk is unlikely to be able to sell an EV to most of the population in new economies,” said Pedro Pacheco, a senior research director at Gartner Inc. in Munich. “However, looking at the size of the population and the potential for economic growth, Tesla is likely to target a rapidly growing group of wealthy individuals who, in absolute numbers, can be compared quite favorably to what we see in many developed countries.”
Palo Alto, California-based Tesla can also use any Indian factory as an export base and exploit multiple markets at the same time, Pacheco said.
The expensive cost of a Tesla is also considered a fixed point by other market monitors. Mumbai-based Basudeb Banerjee, an analyst at Ambit Capital Pvt, noted that “the size of the luxury car market in India is small, as brands such as BMW, Mercedes, Audi and Jaguar Land Rover only account for 30,000 to 50,000 sales annually. . “
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And despite India’s broader potential, charging infrastructure remains an obstacle to large-scale EV use.
According to the International Energy Agency, about 60% of the world’s public slow and fast charging sites are in China. As Chinese automakers execute competitive EV models and develop a diverse ecosystem, the country is “on the verge of disrupting the current global automotive landscape,” UBS Group AG analysts wrote in a report last month.
India has made similar moves but not yet on the same scale.
In 2015, it launched a faster adoption and production of hybrid and EV plan (FAME) with a commitment of 9 billion rupees ($ 123 million) for grants covering everything from electric tricycles to buses, according to the IEA. Another generation of the FAME program, introduced in 2019, was larger by 100 billion rupees to encourage EV purchases and build charging infrastructure.
India also lowered the tax on goods and services on electric cars to 5% from 12%, with effect from August 2019, much lower than the taxes on as much as 28% on other motor vehicles, which has attracted criticism from companies like Toyota Motor Corp.
Read more: India has 150 million drivers and only 8,000 electric cars
(Updates with Analyst Comment in Section 11.)
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