Tesla cannot enter the Indian market in the short term. Why?

 Editor's note: In recent years, the Indian government has implemented extreme trade protectionism policies, hovering on the edge of "closed-off", but the world is currently exploring new supply chains, establishing new connections, and building trade that can last for decades infrastructure. If India misses the opportunity to attract infrastructure, it may miss growth opportunities in the next few years. This article is compiled from bloomberg.com/opinion, and the original title is You Won't See Teslas in India Anytime Soon. The author Anjani Trivedi started with Tesla Motors and briefly analyzed the consequences and future trends of India’s trade protectionism. Helpful.

Protectionism will restrict foreign automakers and hinder any attempts to introduce Chinese-style electric vehicles.

India hopes to catch up with the trend of electric vehicles and is introducing Chinese-style policies to practice its green concept. But there is a problem: its long-standing protectionist instinct has kept international automobile companies out of the door for decades.  

Last month, Elon Musk regretted India’s restrictive policies. He tweeted that although Tesla Inc. wants to produce cars in India, “import tariffs are So far the highest of any major country in the world." He added that clean energy vehicles are "treated like diesel or gasoline vehicles." Hyundai Motor Co. quickly responded to Musk's complaint, stating that lowering import tariffs on electric vehicles would help "achieve some economies of scale in this highly competitive field."  

Although Musk said on Twitter that he "hopes" that there will be some temporary tariff reductions, he is right: India's deep-rooted protectionist practices are still a huge obstacle for foreign companies. Governments in many other regions of the world are pursuing electric vehicle policies to achieve emission targets, while the government led by Indian Prime Minister Narendra Modi (Narendra Modi) is different. ), and strive to promote the development and operation of Indian industrial manufacturing.  

Foreign automakers are eager to seize the opportunity in this market with more than 1 billion people, but they have only two options-pay a certain price or be a bystander. The tariff for importing a set of unassembled parts containing the engine and gearbox (known as a "completely disassembled kit") is about 15%. In contrast, the import tariff for a complete vehicle with a price of more than US$40,000 is 100%, for a lower-priced car is 60%, and for a two-wheeled vehicle is 50%.  

But manufacturing a car requires more than just parts—the precision and quality of manufacturing are also crucial. No one knows this better than Musk. He has experienced his own "production hell", producing 5,000 Model 3 sedans at Tesla's factory in Fremont, California. However, India has not yet established the capacity required for mass production. Therefore, India has not been able to become a major exporter of high-quality automobiles that matches the global market, despite its potential. Most foreign manufacturers have been unable to gain a foothold, because the use of local resources will face punitive taxes, which means high investment and low returns.  

At the same time, the Modi government is talking about carbon emission reduction and electrification in transportation, but it also has greater ambitions of "Made in India". According to the latest plan, we can see that the government has proposed many rules and incentives to promote production in the supply chain. To stimulate demand, the government provides subsidies, for example, to expand the coverage of charging infrastructure. The Indian government’s goal is to increase the penetration rate of electric vehicles from less than 10% to 30% by 2030. Various states have also introduced their own green policies and goals.  

This seems like a good promise, but it does little to encourage Indian consumers to drive these cars, nor does it help automakers produce these cars. Due to the lower average household income, the entire market is dominated by more affordable scooters, motorcycles or tricycles. Most traditional models of the price of 40,000 rupees (5 37 Mei dollars) to between 20 million rupees. Electric models start at 100,000 rupees, and there are only a dozen electric models currently on the market. China’s two-wheeler market is very prosperous. If imports from China with lower tariffs are allowed, it will provide consumers with more choices, help increase competition, and ultimately lower prices.  

If India wants to implement a Chinese-style, top-down industrial policy, there is still a lot of work to do. First, it must be open to foreign manufacturers, but it needs to be adjusted flexibly according to the actual situation. As early as 2017, before Tesla started production in China, sales to China began to account for a large part of its turnover. Although this is due in part to the relatively low import tax rate of 25% at the time, it also reflects the Chinese government's desire to expand the market. The government's position helped electric vehicles gain momentum, boosted the entire supply chain, and triggered a wave of domestic independent development . When allowing foreign automakers to enter the Chinese market, the Chinese government also has its own emerging electric vehicle leader. Tesla is now exporting cars from its Shanghai factory to Europe.  

China is very clear that building a large-scale automobile industry is not the same as building a high-quality domestic automobile industry. The national plan executive department has been trying to produce the best cars in the world for many years, but this effort was hampered by the lack of subsidies and plans. However, in terms of green cars, the Chinese government’s policies are being adjusted and improved every year, covering all aspects of car production-from consumers to manufacturers, to the type and quality of batteries.  

This is exactly what India needs now-to have its own overall model, covering parts, infrastructure and consumer incentives for electric and hybrid vehicles. This may include manufacturing batteries for small cars; building more interchange stations to eliminate drivers’ concerns about how far they can drive; or providing larger subsidies to car buyers in a highly price-sensitive market. Battery recycling can also help lower prices and extend life.  

The old calendar cannot be read, and India will eventually have to propose new policies that adapt to the status quo. If a foreign company can helping hand, it would be capable assistant.