Tesla Ready To Invest $2 Billion But With Clauses While Toyota Looks To Invest More In India, Manufacturing Opportunities And The EV Revolution, India’s Automotive Horizon

Tesla is prepared to invest up to $2 billion in establishing a local factory in India, contingent upon the government approving a concessional duty of 15% on imported vehicles during the initial two years of operation. 

Sources familiar with the matter reveal that Tesla has presented a detailed proposal to the union government, correlating the investment amount with the quantity of cars eligible for import at a reduced duty. 

The company is open to investing $500 million if the government extends a concessional tariff for 12,000 vehicles, with the potential to increase this investment to $2 billion if the reduced duty is sanctioned for 30,000 vehicles.

Insiders indicate that the government is scrutinizing the viability of Tesla’s proposal, particularly the $2 billion investment for setting up a plant. 

Likewise, the government is also contemplating a reduction in the number of cars eligible for import at a concessional tariff compared to Tesla’s suggestions. The current evaluation includes the possibility of limiting concessional tariffs to 10% of the total projected electric vehicles (EVs) to be sold in India in the current fiscal year (10,000 units) and allowing a 20% increase for the second year.

In the fiscal year 2023, approximately 50,000 EVs were sold, and this number is expected to rise to 100,000 in fiscal year 2024. Tesla may commit to localizing up to 20% of the value of made-in-India cars within two years, potentially increasing it to 40% within four years.

The proposal is undergoing a joint evaluation by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Heavy Industries (MHI), Ministry of Road Transport & Highways (MoRTH), and the Ministry of Finance under the guidance of the Prime Minister’s Office (PMO).

India currently imposes a 100% import duty on cars with a cost, insurance, and freight value exceeding $40,000, and a 70% duty on vehicles priced lower than that. 

The government may also require a bank guarantee linked to the capital commitment to recover potential losses due to import duty if Tesla does not fulfill its financial commitments; however, Tesla is reportedly requesting the government to waive the bank guarantee requirement.

Tesla plans to initiate operations in India with three vehicles: the Model 3, Model Y, and a new hatchback; their proposed prices in India, if concessional import duty is granted, are around Rs 38 lakh, Rs 43 lakh, and Rs 20.75 lakh, respectively.

While the discussions between Tesla and the government are ongoing, the specifics of the proposal and the government’s stance have not been previously disclosed.

The Viewpoint

Despite the seemingly ambitious nature of Tesla’s proposal, the Indian government could – extend the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) subsidy to imports of 10,000 cars, capped at 25% of the capital investment, with a requirement for 5% higher local content after two years.

Toyota Looks To Capitalize On Indian Market

Meanwhile, Toyota is set to enhance its presence in India with a significant investment. 

Japan’s Toyota Motor Corp. is planning to inject Rs 3,300 crore into constructing its third manufacturing facility in India; the move is driven by the desire to meet the robust demand for its existing vehicles and prepare for future production of environmentally friendly cars.

The expansion will commemorate the 25th year of Toyota’s operations in India and will bring the company’s total investment in the country to Rs 19,300 crore; senior executives at Toyota Kirloskar Motor (TKM) announced this development during an event at their Bidadi facility near Bengaluru.

Under a memorandum of understanding with the Karnataka government, TKM will establish a new factory with an annual capacity of 100,000 units; this facility is said to be integrated into the existing Bidadi location, providing direct employment opportunities for 2,000 individuals.

The upcoming plant will not only manufacture the latest Innova HyCross model but also produce upcoming models featuring a diverse powertrain mix, although Toyota did not disclose specific details on future production plans.

The expansion marks Toyota’s first major venture in the Indian market in about 15 years. The decision comes at a time when customer waiting times for popular models like the Innova Hycross have extended up to a year. 

Other models, such as the Urban Cruiser Hyryder, Innova Crysta, and certain imported models, also face waiting periods ranging from three to six months, reflecting a notable shift in demand towards SUVs.

Although the new plant is expected to commence operations only in 2026, Toyota’s existing plants, currently operating at full capacity, are taking steps to meet demand. Measures such as the addition of a third shift to the plant, efforts to address bottlenecks in the supply chain, and efficiency improvements within the plant have contributed to a 33% increase in output, adding 30,000 units per year.

Despite the extended waiting periods, TKM claims that customers are holding onto their bookings. The company remains transparent by disclosing estimated wait times for high-demand models. 

Toyota’s strategic initiatives, successful model launches like the Innova Hycross and Hyryder, as well as its global alliance with Suzuki Motor Corp., have propelled the company to fill capacity and increase profitability by 2.7 times from FY22 to Rs 1,404 crore in FY23, according to company filings.

TKM’s strong performance continued into FY23, with a 41% increase in vehicle sales to 174,015 units, compared to 123,770 units in FY22. The company achieved record-breaking sales for four consecutive months, with cumulative sales for the April-October 2023 period reaching 135,080 vehicles, up 29% year-on-year.

Atul Sood, Vice President of Sales and Marketing at TKM, expressed optimism, anticipating the current year to be a record one for Toyota in India.

India’s Manufacturing Renaissance

India has long harboured the desire to be a manufacturing hub, and at present, the country is experiencing a manufacturing renaissance, positioning itself as a global hub for diverse industries propelled by government initiatives, a burgeoning consumer market, and a commitment to sustainable practices.

Thus, India presents numerous opportunities for manufacturers, consumers, and pioneers in the electric vehicle (EV) sector. Several factors contribute to India’s growing prominence in the manufacturing sector, making it an attractive destination for investment and expansion.

1. Robust Manufacturing Ecosystem –

India has developed a robust manufacturing ecosystem with diverse industries, including automotive, electronics, pharmaceuticals, and textiles. The government’s ‘Make in India’ initiative has played a vital role in promoting domestic manufacturing, encouraging both local and international businesses to establish or expand their operations in the country.

2. Growing Consumer Market –

India also boasts a massive and increasingly affluent consumer market, with a population of over 1.3 billion people and the rising middle class and increasing urbanization are factors contributing to a higher demand for a wide range of products, from consumer electronics to automobiles. 

3. Focus on Electric Vehicles –

India is strongly embracing the electric vehicle revolution as the world moves towards sustainable and environmentally friendly practices. The government has set ambitious targets to increase the adoption of electric vehicles, creating opportunities for manufacturers involved in EV production, charging infrastructure, and related technologies. Moreover, government incentives, subsidies, and policy support further fuel the growth of the EV sector.

4. Favorable Government Policies –

The Indian government has implemented several favourable policies to attract manufacturers. Initiatives like the Goods and Services Tax (GST), simplification of regulatory processes, and efforts to improve ease of doing business contribute to a conducive business environment. Additionally, Special economic zones and industrial corridors have also been created to provide tailored infrastructure for manufacturing activities.

5. Global Supply Chain Diversification –

In the wake of global events spotlighting the risks associated with concentrated supply chains, India is becoming an attractive destination for companies looking to diversify their manufacturing bases. The country’s strategic location and vast consumer base make it an appealing choice for businesses aiming to reduce dependency on a single market.

The Last Bit, India’s ascent as a significant manufacturing destination, is marked by a convergence of factors creating fertile ground for growth and innovation. 

Manufacturers can capitalize on a robust ecosystem, favourable policies, and a diverse consumer base. Simultaneously, the electric vehicle revolution is opening new frontiers, offering opportunities for businesses to lead in sustainable practices. 

Tesla and Toyota’s foray into India signifies a transformative era for the country’s automotive landscape; their investments not only contribute to India’s manufacturing prowess but also align with the nation’s commitment to sustainable mobility. 

As the automotive industry undergoes a paradigm shift with a focus on EVs, India stands at the cusp of remarkable opportunities, leveraging the expertise and innovation brought forth by these industry leaders. 

The road ahead promises a dynamic collaboration between global giants and the local market, steering India into a position of prominence in the evolving automotive and EV sectors.