Supparoek Sawangwong, Senior Analyst Asia Powertrain Forecasting
12 April 2021
12 April 2021
Tesla’s Next Stop in India – Part 1
Could India become Tesla’s next Asian production site after China?
During the past few years, news of Tesla’s expansion in the Asia-Pacific region has been making waves in the auto industry, leading to the question of which country will be chosen for the OEM’s next Asian assembly plant after China.
So, what is it about India that finally convinced Tesla to enter this market?
Tesla registered a company in India in early 2021, with an initial business plan that would take the form of imported CBU (Completely Built Up) BEV models and a supporting sales function. The next investment step, including research and development, or even car assembly itself, would be considered later, once the brand and its sales functions were established. However, it appears that the Indian government would like a faster pace of investment from Tesla than a simple import and distribution operation.
India has a large car market, is an export hub, and is building up an xEV ecosystem.
In addition to supportive policies, Tesla would benefit from India’s huge market and growing purchasing power. The country could also become an export centre for the right-hand drive market. In addition, India has been working to build a strong xEV ecosystem, including a related supply chain network. The country is keen to reduce its dependence on imported xEV key components and is promoting the concept of self-reliance as the most sustainable solution for it to create and foster a domestic xEV industry.
However, it is not an easy task to bring pure-electric vehicles like Tesla’s products to commercialisation in India. The price point is too high for most buyers, requiring a price reduction and/or government subsidy before a typical buyer would consider a Tesla product. Moreover, anticipated minimum domestic sales volume is one of the main reasons impacting any decision to localise production. Although India’s population, like China’s, has exceeded 1 billion, it has nowhere near the same level of car demand as China, let alone for electric cars. Last year, India only sold a few thousand electrified vehicles (including HEV, PHEV and BEV) out of a total of 2.35 million PV sales. China’s xEV sales reached 1.25 million vehicles out of a total of 20.8 million PVs sold. So, the popularity of electric cars differs significantly between the two markets. There are also many contrasting elements in the supporting manufacturing ecosystem, government xEV promotion, charging infrastructure, model availability in the market, and pricing. These factors would be included in Tesla’s decision-making process as it ponders how to enter India’s still very limited internal BEV market.
So, what is the most likely scenario for Tesla’s activities in India?
We think that India has a high potential for Tesla to build a CKD (Completely Knocked Down) assembly plant, once a sales network has been established, but it will depend on how far India can help Tesla to get past the crucial barriers outlined above.
Equally important is the area of batteries. Tesla is currently supplied with batteries by three major manufacturers: Japan’s Panasonic, South Korea’s LG Chem and China’s CATL. India does not have enough industrialised supply of raw materials to produce batteries at scale. It is therefore possible that India could be selected as a BEV assembly base, while it is likely that batteries would be imported from a country such as Indonesia. In November 2020, it was reported that Tesla will invest in a joint venture with the Indonesian government to produce batteries using nickel ore as Indonesia has 25% of the global reserves of this mineral. However, a final decision on this project is yet to be confirmed. Even before Tesla showed interest in this country, Indonesia had signed a $9.8 billion investment deal with LG Chem to produce batteries for electric vehicles, and a similar investment deal is in place with China’s CATL. This points to Indonesia’s potential as a future key player in the BEV battery sector, as we highlighted in our blog post.
Note: In Part 2 of this blog post, we will delve deeper into how Tesla’s potential activity in India will correlate with other countries.