If Tesla comes in, India's position as a manufacturing hub will rise many notches, as it will become only the second country, after China, to have both Apple as well as Tesla.
Four years ago, Elon Musk kicked off a vociferous debate in India's auto industry when he said he wanted to come to India with the Tesla, but the stumbling block was the steep import duties, the highest in the world, which needed to go down substantially as a precondition to Tesla's entry.
Domestic players such as Tata Motors and Mahindra & Mahindra opposed any move to reduce duties on fully-built cars.
Tesla, though, had the support of other global players with manufacturing facilities in India: Hyundai, Volkswagen, BMW, and others who, too, pushed for lower duties so that they could garner scale.
Last month, the government tried a fine balancing act by announcing a new electric vehicle policy that sharply reduces customs duties on imported electric cars with a CIF (cost-insurance-freight) value of above $35,000, from 70 to 100 per cent to 15 per cent for five years, provided the manufacturer makes a minimum investment of $500 million in India within three years, and reaches domestic value addition of 25 per cent in the third year and 50 per cent in five years.
For the time being, at least, no one is opposing this.
Says R C Bhargava, chairman, Maruti Suzuki, India's largest carmaker by far: "The government has put in enough safeguards to ensure the domestic industry does not face any real damage. By restricting the number of vehicles and allowing lower duty for cars with more than $35,000 CIF value... The market for it is very small, where domestic players don't have a presence."
A spokesperson for M&M agrees: "The new EV policy reinforces the Make in India momentum, with requirements of bank guarantees, minimum investment commitment, and local value addition. This will accelerate the EV ecosystem in India."
At present, India's EV market at price points above $35,000 has six models, whose combined sales are in thousands. But that could change if a dozen high-end models come in, as is being expected from this year onwards.
Will Musk Make in India?
The policy is focused not only on making India Atmanirbhar, but also ensuring the country does not lag behind the world leaders, such as China, in the transition from internal combustion engines (ICE) to electric.
The intent is also to make India a global hub for electric car manufacturing, an opportunity the country missed with ICE vehicles.
In many ways, it could replicate India's success in mobile devices, through the production linked incentive (PLI) scheme, where Apple Inc agreed to shift a substantial portion (12 per cent by 2023-2024) of its assembly from China to India.
Mobile devices are the reason electronics are shining in India's export basket.
If Tesla comes in, India's position as a manufacturing hub will rise many notches, as it will become only the second country, after China, to have both Apple as well as Tesla -- both of them as iconic as a brand can possibly be -- operating wholeheartedly, with their technology, supply chain, and manufacturing operations, and supplying to the world.
The question is, does the new EV policy do enough to attract the big guns?
While everyone waits to hear from Tesla, B V R Subbu, veteran auto industry professional, former president of Hyundai Motors India, and board member at various auto companies, says: "I won't wager how Tesla would react to this, but for now the biggest beneficiary could be Hyundai India, if it figures out how to play the game."
Analysts say Hyundai, which recently acquired General Motors' Talegaon plant, plans to invest Rs 6,000 crore (Rs 60 billion) -- more than the $500 million threshold laid down in the new EV policy -- to expand its capacity to 1 million.
It could use the new policy to import its existing models at a much lower price and push volumes.
Vietnamese carmaker Vinfast, which lobbied for a lowering of duties, has said it would participate under the new policy.
It is understood to be readying an investment of Rs 4,000 crore (Rs 40 billion) to set up a manufacturing plant in Tamil Nadu.
On the strength of this investment, Vinfast could hasten its entry into India by importing some of its models priced at above $35,000.
It would be especially interesting to see how European carmakers respond.
Is the Indian market big enough for them to commitmore money to get the import duty advantage?
Another question is, whether global players can manufacture EVs in India at competitive costs for the world market.
Components of success
It is here that India has an advantage. Its vibrant component ecosystem already supplies to the best in the world.
Unlike in mobile devices, where the supply chain is still a challenge -- Apple Inc's local value addition is 12 to 15 per cent after three years of PLI -- experts say everything for an EV is available in India, except the battery cell, where, too, the global players are readying to come to India.
Automakers acknowledge that Indian component suppliers offer European quality at prices that are 35 per cent lower than what is offered by their own vendors.
Chinese suppliers offer the same quality, but at prices 25 per cent lower, giving India a substantial arbitrage advantage of 10 percentage points.
That is why EV makers can start with higher localisation.
"Nearly 18 per cent of the value addition comes from assembling alone. Our estimate is that Tesla can hit 25 per cent localisation within six months in India. It already imports components such as differential gears and other parts and is looking at $2 billion worth of component imports this year," says a senior executive of a components major.
However, Subbu points out that the domestic value addition targets in the new EV policy are too soft.
"Given the competencies of India's component industry, it could have easily defined a DVA of 50 per cent in year one, going up to 80 per cent in the fifth year," he says.
He also argues that there is a need to define the detailed contours of minimum investment.
It should include stamping, welding, surface treatment, and final assembly and testing, so that companies do not do mere goldplating to reach the number.
"There is a Chinese company that sells SKD (semi-knocked-down kits)-based EVs assembled in a shed of a 5-acre plot. We sure don't need that."
ICRA says the overall penetration of electric cars in India is expected to touch 15 per cent by 2029-2030 -- a sizeable volume of more than 1 million -- from a mere 1 per cent in 2022-2023.
Tesla, for instance, is looking at manufacturing a compact model priced around $25,000 (about Rs 20 lakh/Rs 2 million) for Asia and Latin America.
India can be a contender to become its manufacturing base. Over to Elon Musk, then.
Feature Presentation: Rajesh Alva/Rediff.com
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