Tesla's India electric vehicle plans on track despite Elon Musk postponing Modi meeting

Tesla CEO Elon Musk's decision to postpone his meeting with Indian Prime Minister Narendra Modi this week has sparked a debate over New Delhi's ability to lure investors even though his electric vehicle maker is expected to follow through with its plans to set up a manufacturing base in the country.

Industry insiders and analysts cite the ongoing elections in India as the main reason for the billionaire to reschedule his visit, with Delhi preoccupied with campaigning and hindered from announcing any economic policies.

Musk was expected to unveil plans for a manufacturing plant in India after Delhi announced last month lower import taxes on certain electric vehicles for companies that commit to at least US$500 million of investment in manufacturing facilities within three years.

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But days before Musk's much-anticipated visit to India, he backed out.

"Unfortunately, very heavy Tesla obligations require that the visit to India be delayed, but I do very much look forward to visiting later this year," Musk said in a post on X - formerly Twitter - on April 20.

Musk's announcement prompted opposition Congress Party leader Jairam Ramesh to comment on social media that "it was odd that @elonmusk was coming all the way to India to meet an outgoing Prime Minister. He too has now read the writing on the wall and decided to put off his visit.

"INDIA's PM will welcome him soon, and the INDIA Government will promote electric vehicles even more aggressively - I myself am a user of one!" he said. INDIA refers to a coalition of opposition parties challenging Modi's ruling Bharatiya Janata Party (BJP).

Musk's decision has led BJP supporters to speculate if he knew how the election would turn out in contrast to several surveys that had predicted the BJP's return to power. The results of the elections are due on June 4.

Finance Minister Nirmala Sitharaman told a press conference that "when big companies show interest to come to India, we certainly make sure to make it attractive for them.

"Especially after China started being a concern for many industries or many experts in domain areas, we have made policies in such a way that we are making India an attractive destination, both for manufacturing and services."

While analysts were surprised by Musk's decision, they agreed that Tesla would ultimately set up a base in India, which overtook Japan as the world's third-largest automobile market in 2022.

As Tesla's profitability has been declining after embarking on price cuts to capture a larger market share, it would need to tap the Indian market to increase its sales, said Puneet Gupta, director of mobility at S&P Global.

"They need a scale in India quickly so that they have a grip on the system. [Perhaps] they want to hire a local partner to minimise their risk," Gupta said.

Tesla would need the support of such a partner to negotiate potential challenges while rolling out operations in Indian states, Gupta said. The company might be assessing whether the next Indian government plans to adjust related policies further, he added.

Musk had previously cited India's high import tax regime as a hurdle preventing Tesla from selling cars in India, analysts said. His view prompted Delhi to introduce lower taxes linked to electric vehicle manufacturing, they added.

While Tesla is expected to introduce a low-cost model in India at some point, it may rely on importing its existing models after it enters the market, according to the analysts.

On Tuesday, Tesla said it plans to accelerate the launch of less expensive cars and start producing new models as soon as this year, ahead of its previous launch timeline in late 2025.

Analysts said it was unclear whether Tesla's planned production of "more affordable models" was related to low-cost cars or its aim to reduce the costs of its existing Model 3 and Y vehicles.

Suraj Ghosh, an independent auto analyst, said Tesla would need to set up a base in India regardless of the car models.

"India is one of the most important and fastest-growing markets, and eventually Tesla has to be here. India is going to be an important manufacturing hub and an important sales point," he said.

Telsa is expected to announce its plan to set up a plant in India once it accepts the tax incentive under the new electric vehicle policy, Ghosh said.

With its manufacturing base in place, Tesla could expand into the luxury car segment in the country, according to Ghosh. The carmaker should be able to find a "sweet spot" as its cars are likely to be priced within a range of 3.5- 4 million Indian rupees (US$42,000 to US$48,000), he said.

As India's electric vehicle market is set to become more competitive with the entry of Tesla, local carmakers such as Tata Motors could offer discounts due to declining battery prices and productivity-linked incentives offered by Delhi, analysts said.

Ramesh K. Vaidyanathan, managing partner at law firm BTG Advaya, said that Musk's decision is sensible as the government is preoccupied with the election and has to observe rules preventing politicians from making major policy announcements. He expects a "political slugfest" among Indian states to woo Tesla to set up its manufacturing plant.

"Tesla's investment in India will be a big bang announcement for understandable reasons."

This article originally appeared on the South China Morning Post (SCMP).

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