Tesla won't fall far from the Apple tree

Tesla is unlikely to receive a special tax treatment to sell its cars in India. The EV company may have to operate through sweeteners offered to foreign investments, and for accelerated adoption of electric mobility in the country. There could also be some leeway in allowing Tesla’s Chinese vendors to set up production bases in India after the experience of Apple‘s contract manufacturers – who were finding it difficult to seed the local ecosystem as they ramped up production and exports from India. These beneficial terms do not subvert India’s policy framework to encourage domestic manufacturing. They will also be easier to defend.

India has set itself an ambitious transition plan for EVs, and Tesla, whose market capitalisation is driven by its established technology, has to participate. It risks losing the advantage otherwise to legacy automobile manufacturers that have declared sunset dates for internal combustion engines (ICE). Toyota and Volkswagen, the world’s top two carmakers, have a presence in India and are expected to set up a strong defence through accelerated EV technology transfer to their local operations. Domestic automobile companies like Tata Motors and Mahindra have stepped up their EV offerings as their Asian and European rivals in the country pitch hybrid offerings considering the charging infrastructure available.

The special dispensation to Tesla’s vendor train is not unique either. The experience of Apple, poster boy of ‘Make in India’, has led to a reappraisal of GoI’s view on Chinese component suppliers. India needs Chinese firms to help build the ecosystem for a rapid scaling up of manufacturing exports. The terms Tesla is being offered are the best available without making it a special case that would involve a reduction in import duties on Chinese-made vehicles for testing in India. Tesla would do well to consider these terms for its Indian production plans. Once existing players consolidate tax-assisted market shares in EVs, entry barriers will rise in a price-sensitive market like India.