India vs China For Tesla: Which One Can Be More Beneficial?

Last week Elon Musk canceled the meeting with our honorable Prime Minister Narendra Modi to meet Chinese Premier Li Quan. Folks couldn’t stop wondering why. The reason cited by him was- “very heavy obligations for Tesla.”

Here comes a million-dollar question- India vs China- Which is more beneficial for Tesla?

Let’s break down the whole saga to determine it!

(A) Why did Elon Musk ditch India and prioritize China?

Elon Musk’s trip to China sparked intense debates in India. He visited China numerous times so why did this visit create controversy? You may ask. Look, his visit to China happened a week after he canceled a visit to India. This was the initial plan for Elon’s visit to India-

• A thorough meeting with Prime Minister Narendra Modi
• Announcement of $3 billion investment in India

As soon as the date of the visit to India neared, Elon Musk suddenly announced the cancellation of the visit. The reason? “Very heavy obligations at Tesla” he cited. 

So, what was that so-called “very heavy obligation”?

A visit to China!

Yes, it turned out that a visit with Li Quan (Chinese Premier) was more important for the Tesla headquarters than the Indian counterpart.

(B) What is Elon Musk’s objective to maintain good relations with India and China?

Musk is known as a very shrewd businessman. He aims to win concessions from both the dueling neighbors (India vs China). Here are the concessions-

• India: To benefit from the special Electric Vehicle Policy of the Indian Government. It will help Tesla to expand the market in South Asia.
• China: To obtain approval for the launch of Tesla’s FSD (Full Self Driving) vehicle.

(C) How Elon-China Visit hit two birds with one stone?

Here are the benefits gained by both parties-

• Elon Musk: To protect Tesla from the heat waves of the stock market. Tesla’s share price has been on a downward trend for the last few months.  However, his visit to China resulted in a 15% jump in Tesla’s share price. Elon signed a deal with Baidu to open its mapping data and lane-level navigation service for the company.
• China: A positive image boost was much needed for China amidst its economy facing multiple challenges. Also, China wants to revive foreign investments.

Note:  Recently, the growth trajectory of the India vs China economy has become a topic of discussion. India has been experiencing strong economic growth, with its GDP growing at 6.1% last quarter, outpacing China’s growth rate of 4.5%. Visit the article “India Vs China Economy: Which Is Better Placed For Growth?” for more information.

(D) Why China is better than India for Tesla?

In the previous section, you read how Tesla’s visit to China benefited both parties. Now, we will dive into some genuine reasons why China is considered a better option than India for Tesla.

(D.1) China’s Positive Aspects

Here are some facts and advantages offered by China to Tesla-

• Dominance in EV battery production: As you know, China contains abundant lithium reserves due to which it became a lead producer of Lithium Ion batteries- a key component of EVs (Electric Vehicles). Some of the famous Chinese EV battery manufacturers are CATL (Contemporary Amperex Technology Co. Limited), Genfeng Lithium, Nanjing Trophan, Shenzhen, etc. Tesla purchases Lithium Ion batteries from these Chinese companies.
• Manufactures 60% of the world’s EV
• Sold 8 million EVs in 2023
• Gives a major revenue Boost to Tesla
• The second biggest market for Tesla
• One of the biggest supply bases of Tesla- Shanghai Giga Factory is capable of assembling a car in 40 seconds and produces over 1 million units of Tesla cars per year.

Fun Fact: Do you know CATL produces 2/3rd of the world’s EV batteries? Companies like Volkswagen AG and Toyota Motor Corp also purchase their batteries from CATL. 

(D.2) India’s Negative Aspects

Here are some reasons why India may not be as suitable as China for Tesla-

• India needs a large and fresh investment of $2 billion to $3 billion.
• India’s market is entirely new and far more complex than China’s. It doesn’t have any fixed outcome. This is a massive hurdle for Tesla.
• Despite being the 3rd largest auto market in the world after the USA and China, but only 1/5th of China’s size.
• Sold only 90,000 EVs  (Four-wheeler) in 2023.
• Less Advanced Market: India’s current EV market is where China was a decade ago (2014). You can say that we are 10 years behind China which doesn’t allure foreign EV companies like Tesla.
• For Tesla, investing in India is repetitive yet risky. How? They need to repeat the whole process that they executed in China in 2014.
• Regulatory Flip Flop in India’s EV Policy: In 2018, the CEO of Niti Aayog denied the need for any EV policies. This was a major disappointment for foreign EV companies like Tesla.
• India heavily relies on the import of EV batteries from China and Japan.
• A challenge to Tesla’s specialty of Auto-Driving: The majority of Indian roads are unplanned with chaotic traffic jams. This acts as a major hindrance to Tesla’s special feature of auto-driving.

Due to all these reasons, China is cited as more significant than India for Tesla.

(E) Challenges faced by Tesla in China

Hold a minute, it is not always sunshine! Reason? Tesla’s situation in China isn’t as pleasing as it sounds. Elon’s Tesla faces numerous challenges in China. Some of the major ones are-

• Declining Sales & Revenue: Tesla’s revenues dropped to $21.3 billion in the March quarter. It was less than 9% of the previous year’s revenue.
• Increase competition with Chinese players: Chinese EV companies like BYD, Nio, Geely, etc. Among these BYD is the greatest EV manufacturer in the world which gives tough competition to Tesla. Chinese automakers and startups have aggressively entered the electric vehicle (EV) market, directly competing with Tesla. Some of these companies offer EVs at lower prices, challenging Tesla’s dominance. To maintain its market share, Tesla must continuously innovate and adapt to the evolving Chinese EV landscape.
• Safety & Data Security Concerns: Tesla faced backlash in China due to safety incidents and data security concerns. These issues prompted scrutiny from Chinese authorities and the public. Elon Musk sought to address these concerns by emphasizing Tesla’s commitment to safety and data protection.
• Maintaining Diplomatic Relations: Both Elon Musk and Tesla are sandwiched in the battle of US vs China. The US is looking to ban Tik Tok and if it executes this decision then Chinese people will become hostile to American companies including Tesla. Fortunately, during his visits to China, Musk engages in diplomatic discussions. Chinese Premier Li Qiang expressed hope for “win-win” cooperation between the U.S. and China, citing Tesla’s operations in China as a successful example of economic collaboration. Musk’s interactions with Chinese leaders play a crucial role in maintaining positive relations and facilitating business opportunities.
• Heavily Dependent on China for Tesla’s batteries: As discussed above, China is the king of lithium-ion (EV) battery production due to its vast lithium reserves. Even Tesla also purchases its batteries from Chinese companies like CATL and Ganfeng. 

So, deprioritizing China may cost Tesla heavily.

(F) Benefits offered by the Indian EV Market

The challenges discussed in the previous section are quite concerning for Tesla. Hence, it is looking to lay a foundation in India. You have already read about the challenges/disadvantages of the Indian EV market. Now, it’s time to look at the positive aspects of the Indian EV market.

(F.1) India is devising its EV Policy

India’s new EV policy cuts the customs duty to 15% from the 100%. Also, the minimum investment for setting up the EV manufacturing facility has been fixed at $500 million (Rs.4,150 crore). This policy has already attracted global EV Players like-

• Jaguar Land Rover (United Kingdom)
• Vinfast (Vietnam)
• Ford (USA)
• Tesla (USA; to be expected not confirmed)

Unless and until Elon Musk confirms the deal of setting up a Tesla manufacturing facility in India by investing $2-$3 billion, everything about Tesla’s entry into India is speculation.

Also, the NEMMP (National Electric Mobility Mission Plan) is looking to maximize the EV fleet in India by the year 2030. To achieve this goal, the Indian government is already offering incentives, tax exemptions, and subsidies to manufacturers and buyers of EVs.

(F.2) Revenue Potential

• Future Market Share of EVs in India: 40%
• Revenue Potential by 2030: $100 billion

According to experts, EVs will account for over 40% of the Indian automotive market and will be capable of generating revenue worth over $100 billion by the year 2030.

(F.3) Low-Cost Operating Structure

Do you know what’s the cherry on top for foreign companies when they set up a manufacturing plant in India? They get skilled labor at a low cost! Yes, India is famous for skilled and cheap labor. This factor not only saves the Company’s expenses but also offers a great employment opportunity for Indian workers.

(F.4) Similarity between the market of India and other developing countries

Here comes the most underrated benefit of the Indian market. You know what the legends say- “If you can crack the Indian market, you can crack any market of the world!” There’s a reason for it. Indian market is considered one of the most difficult markets to succeed.

Also, the Indian market resembles the market of many other developing countries of the globe.

So, if Tesla receives an appreciable success rate in India, it can succeed in other developing nations like-

• Central Asia
• Africa
• Latin America

Thus, success in India will hint at the high success rates for Tesla in these countries.

(F.5) Strengthen the Strategic Partnership with India & USA

When Tesla invests in India, it’s like saying, “Hey, we trust in your market!” This boosts ties between India and the US. It’s not just about cars; it’s about sharing technology and ideas, making both countries stronger. Plus, it makes India look good for other American companies too. So, when Tesla rolls into India, it’s not just about cars; it’s about building a stronger bond between nations.

(F.6) Overcoming the Challenge of Lithium Ion Battery Production

It is a fact that currently, we are heavily reliant on the import of EV batteries. But this isn’t going to be the same forever. The Indian Government has launched a PLI (Production Linked Incentive) scheme for the production of Lithium Ion batteries in India. By 2030, India will be able to meet 13% of the global battery demand.

(G) Current Scenario & Future Prospects of Tesla in India

There is a limited market for Imported Tesla Cars in India. As cited by Indian rules, only 8,000 cars per year of a specific company can be imported if they’re priced over Rs.45 lakhs ($54,000). Tesla falls in this category despite benefiting from a lower import tax policy.

So, how can Tesla overcome this?

Well, local manufacturing will help Tesla to tackle this challenge. Here’s how-

• Lowering the price tag: When Tesla manufactures its cars locally in India instead of importing them, it avoids hefty import taxes and shipping costs. These savings can be passed on to the customers, making Tesla’s electric vehicles more affordable for Indian consumers. By reducing the price tag, more people can consider purchasing Tesla cars, thereby expanding the market for electric vehicles in India.
• Mass production of Tesla EVs: Local manufacturing allows Tesla to ramp up production volume. When cars are made in larger quantities, the cost per unit decreases due to economies of scale. This means Tesla can produce more electric vehicles at a lower cost per vehicle. With increased production capacity, Tesla can meet the rising demand for electric vehicles in India and cater to a larger customer base.
• Expanding the User Base: With lower prices and increased availability, Tesla can reach a broader audience in India. By making electric vehicles more accessible to a wider range of consumers, Tesla can attract new customers who were previously deterred by the high cost or limited availability of electric cars. This expansion of the user base not only boosts Tesla’s sales but also accelerates the adoption of electric vehicles across different segments of the Indian population.
• Boost localization & customization to overcome Tesla’s auto-driving challenge in India: While Tesla’s self-driving technology is advanced, it faces unique challenges in the Indian context, such as chaotic traffic conditions and diverse road infrastructure. By localizing and customizing their technology to better suit Indian roads and driving habits, Tesla can enhance the performance and reliability of their auto-driving features. This tailored approach ensures that Tesla’s vehicles can navigate Indian roads safely and efficiently, overcoming any hurdles posed by the local driving environment.

(H) Final Words

Due to the pre-established market in China, Tesla is favoring China. But with respect to long-term goals & vision, India is a perfect platform for Tesla to expand its EV market. How? Tesla’s success in India can serve as a road map to success in other developing countries and hence expand the company around the globe!