Global EV giants Tesla and BYD will encounter substantial challenges as they attempt to enter India's passenger vehicle (PV) market. Despite India's burgeoning interest in electric vehicles, stringent policies and a strong domestic market presence make it difficult for these companies to establish a foothold. According to an Anand Rathi study, which was reported by news agency ANI, India's top four PV makers, including Maruti Suzuki, Tata Motors, hold over 75% of the market, presenting a formidable barrier for new entrants.
Based on the report, four primary factors may hinder foreign carmakers from succeeding in the Indian market. These include India's strict EV policy, investment limitations on Chinese companies, a limited EV adoption rate (currently at just 2% of the market), and a lengthy localisation process that can span up to four years. The report also emphasized the key challenges that Tesla and BYD might encounter, such as navigating EV policies, addressing low EV adoption rates, and undergoing a lengthy localization process before gaining traction in the domestic market.
Tesla's entry in India
Tesla's venture into India is fraught with pricing challenges. The company's most affordable model, the Model 3, is considerably more expensive than the average Indian vehicle, with most sales occurring below the Rs 2 million mark.
Other models, like the Model Y, Model S, and Model X, are priced even higher, making mass adoption unlikely. A recent CLSA report suggests that even if Tesla introduces a budget-friendly model, significant market penetration would remain elusive due to existing Indian automakers' stronghold.
"If we still assume that Tesla launches a sub-Rs25 lakh on-road model in India and gains market share, we believe the recent de-rating of Mahindra & Mahindra is already pricing this in. We do not believe that Tesla's entry would have any significant impact on Maruti Suzuki, Hyundai Motors India or Tata Motors," CLSA analysts said.
High tariffs
The US is advocating for India to eliminate tariffs on imported vehicles as part of a proposed trade agreement. While India is hesitant to completely remove these duties immediately, it is willing to consider gradual reductions, as per a report by Reuters. Lower tariffs could potentially favour American car manufacturers like Tesla in the future. Formal trade discussions are anticipated to include deliberations on India's high auto tariffs, although these negotiations have yet to commence.
FDI in auto sector
In addition to pricing hurdles, foreign direct investment (FDI) restrictions present a significant challenge for Chinese automakers like BYD. The PN3 clearance process demands strict approvals, thereby limiting joint ventures and hindering market entry. MG, rebranded as JSW MG, exemplifies these constraints, with a mere 1.5% market share attributed to investment hurdles and a narrow EV focus. These challenges underline the complexity of entering the Indian market, as existing players like Tata Motors continue to dominate.
India's EV policy
India's updated electric vehicle (EV) policy permits the import of high-end vehicles costing over $35,000 (approximately Rs3 million) with a discounted 15% duty, limited to 8,000 units per year. Despite this, the luxury segment remains niche, with annual sales reaching just 45,000 units. Toyota currently holds a commanding share of over 80% in this premium market, presenting limited opportunities for new entrants.
Domestic worries
Last month, the government engaged in discussions with local car manufacturers to address their apprehensions regarding potential tariff reductions. India's car market, producing approximately 4 million vehicles annually, remains highly protected globally. The local manufacturers have historically opposed tariff decreases, citing concerns about deterring investments in domestic manufacturing.
Prominent Indian automakers such as Tata Motors and Mahindra & Mahindra have raised alarms about potential tariff cuts, particularly in the electric vehicle (EV) segment where they have made substantial investments. They argue that lowering import duties could lead to cheaper foreign EVs, potentially impacting the growth of India's indigenous EV industry.