Why does Tesla not want to ‘Make in India’?

By Md. Taraq Junaid

It looks like India will have to wait a little longer before Tesla finally accepts the proposal to ‘Make in India’. Apparently, the electric car maker has been neutral to India’s generous offer of a huge chunk of land near a major Indian port.

India’s woes and need for electric transport

Last month, Elon Musk, CEO of Tesla, tweeted that the company plans to launch its products in India in the summer of 2017. Tesla has planned numerous expansions in 2017. These include Taiwan, Portugal, South Korea, New Zealand and the UAE.

Considering the alarming increase in pollution levels, India has been seriously contemplating ideas that would help convert its fast-growing vehicle fleet to electric transport. Almost 250,000 vehicles are being added to the roads every month.

The proposal to ‘Make in India’

Last year, Nitin Gadkari, Minister of Road Transport and Highways of India, visited Tesla’s Fremont factory to talk about the introduction of pollution-free vehicles for both commercial and public transport in India. He also proposed collaboration between Tesla and Indian carmakers to manufacture electric cars within the country for domestic and South Asian markets. However, there were no significant developments after the visit.

Gadkari said that the Government has tried its best to bring Tesla onboard. “I have told them we will give you land at the ports, but we haven’t got any indication yet,” he said.

Tesla’s financial pickle

Elon Musk has been in the news right from the beginning for his ambitious plans and risky endeavours. While Tesla is arguably the most successful electric carmaker ever, the company has not been able to make much money for itself yet. Tesla’s net income in the 2016 financial year was $-773 million. On top of that, the recent merger with SolarCity left people wondering if it was Musk’s idea to bailout his sinking solar company. With such financial statistics, Musk is very careful about the markets he invests in.

Reasons why Tesla might be hesitant

The Indian market for Electric and Hybrid vehicles (E/H Vehicles) is quite a downer for investors. With high upfront costs and inadequate maintenance facilities, these vehicles have had terrible sales over the years. According to reports, in 2012, only 130,000 E/H vehicles were sold. Additionally, these figures and the market for these vehicles is largely dominated by 2 wheelers sales which contribute to about 98% of the total.

Despite international acclaim, customer acquisition will also be a huge problem for Tesla. With almost the entire population dependent on internal combustion (IC) engine-driven vehicles, it will take some time before people open up to the idea of owning an electric car. Compared to other countries that Tesla plans to expand to in 2017, India will be a huge market. Huge markets require a huge investment. With negligible service facilities available for electric cars within the country, Tesla will have a tough time establishing ground.

With such uncertain business prospects and weak financial status, Tesla’s hesitation to set up a manufacturing facility in India completely makes sense.

Featured image credits: Quartz.