Asian Country Persists in Garnering Elon Musk’s Favor, Preparing for Tesla’s Entry, Sending VinFast into Worry
The efforts made by Indian officials to win over Elon Musk may soon pay off, according to a Bloomberg report. Earlier, Indian Prime Minister Narendra Modi expressed his desire for Musk to open one of Tesla’s “gigafactories” in India as part of an effort to expand the country’s struggling manufacturing sector. On the other hand, Musk wants India to address import duties on electric vehicles, which make Tesla’s foreign-produced cars less competitive.
On March 15, the Indian government announced a new plan to boost investment in electric vehicles. Under the plan, any company willing to invest $500 million in a new manufacturing facility will be allowed to import 8,000 high-end vehicles every year with a reduced tax rate of less than 15%. The company must start production within three years and have at least 1/4 of the components sourced locally.
This “exchange” is expected to attract Musk’s attention, while also causing concerns for companies like VinFast, an electric car manufacturer currently building a factory in India. The electric car market leaders in India are certainly preparing themselves for the upcoming competition.
On the surface, this seems like normal business operations. Officials believe that high taxes, coupled with a potential growth in consumer demand, will be enough to entice people like Musk. However, there are bigger issues at play. For instance, the Indian government has high hopes for the transformational potential of a major investor. They have previously put great effort into attracting Apple, and now they believe the entire mobile phone manufacturing ecosystem will develop around Foxconn Technology Co.’s factories in southern India.
In recent years, India has also tried to persuade chip manufacturer TSMC to do something similar. This is the strategy of an anchor investor: bringing in a big fish like Musk, and the smaller fish will follow. Of course, this is not the first time governments have tried this approach. China famously waived domestic ownership requirements for Tesla to open a gigafactory in Shanghai. It seems to have paid off, as Tesla stated that over 95% of the components used in the factory are sourced locally.
Naturally, there are reasons why Elon Musk claims he cannot invest heavily in a country where Tesla vehicles cannot even be imported and seen on the streets yet. Importing vehicles would allow the company to establish a charging infrastructure and then develop a domestic market sufficient to offset the investment made in local production.
Tesla has a clear advantage in such deals. The company’s business model emphasizes vertical integration, giving them more control over their supply chain compared to their competitors. The question is, how will local companies cope with new entrants entering India’s electric vehicle market? The optimistic view is that companies like Tata Motors, if worried about competition from global Tesla vehicles when import duties are reduced, should advocate more strongly for lowering trade barriers in general. That’s the only way they can compete, with their expanding supply chain.
The automotive industry needs to become the loudest voice in support of trade agreements, such as the ones India is currently negotiating with the UK and the European Union. Production will only take off when the business environment truly improves, with low and stable tariffs, and regulatory agencies welcoming smaller companies as well as the “big fish.”
India’s bold bet on major companies could pay off. It is clearly the direction of the country’s industrial policy: relying on reliable foreign partners to transform the entire sector. However, a definitive conclusion cannot be reached when dealing with Elon Musk, a renowned CEO known for his unpredictable nature.