As Chinese companies face increasing scrutiny from the country’s government, Tesla (TSLA.O) is making inroads into its largest global market. CEO Elon Musk is said to have met with Prime Minister Narendra Modi during the latter’s visit to the US in June, and the Indian leader has made it clear that he wants to make a Tesla presence in India, despite the federal government’s recent decision to deny the company special import duties.
The meeting could signal that the two parties are prepared to work together on a plan for the company to establish an electric vehicle manufacturing facility in India and provide local components. The discussions come as Tesla prepares to roll out its newest Model 3 to the world’s third-largest auto market while working on an even cheaper version of its latest platform. The new Model 3 should be able to compete with more affordable EVs from Tesla’s rivals, including China’s BYD (002594. SZ), which has a stronghold in the domestic Chinese market.
While the Indian market is not nearly as large as the Chinese one, it holds significant potential for a new business model for Tesla, focused on attracting more affluent customers with a premium brand and an enviable tech-driven reputation. The country has a growing middle class that is expected to drive demand for EVs, and the nation’s energy policies favoring renewables are a boon for battery makers.
In addition, the government’s stepped-up efforts to promote manufacturing should be helpful for companies like Tesla that are trying to push back against reliance on foreign suppliers to lower production costs. This could be particularly important for the company if it is to meet its aggressive timeline for producing its Class 8 EV semi-truck.
The company is also likely to find a willing partner in India to expand into the commercial vehicle segment, where it is currently playing catch-up with established players like Ford (F). The Indian government recently lowered the corporate tax rate on imported vehicles and is reportedly working on a special incentive package for the sector.
These talks also help to defuse tension between Tesla and its most significant rival in electric vehicles, China’s BYD. The latter has been able to dominate the industry in China, which has stricter environmental standards, by leveraging its local footprint and government influence. However, that could change in India, where the government is determined to keep foreign monopolies out of its key sectors. If BYD can capitalize on the growing interest in EVs, it could retain its current advantage in the domestic market. That, in turn, could give Tesla an opening to negotiate terms for entry into India without the competitive threat from its Chinese rival that it faces in other emerging markets, like Thailand. That could allow Tesla to accelerate its aims for growth as it strives to become the leading global producer of both cars and batteries.
