India is experiencing a stealth revolution in its automobile industry, but its market is surprisingly resistant to the disruptive ambitions of global electric vehicle (EV) leaders such as Tesla and BYD. A tangled web of safeguard measures and market dynamics is preventing international giants and their technological superiority from taking over, letting local players maintain their stranglehold.
Its tariff regime is India's prime shield. India has levied some of the highest duty rates in the world, readily exceeding 100 percent, on fully assembled units (CBUs) throughout history. With such high tariff rates, the imported EV is rendered unaffordable for most consumers, and hence the home market is effectively shielded from direct foreign competition.
The government has recently rolled out an EV policy that provides a lower tariff of 15 percent to automakers who invest more than US$500 million in domestic production and use a substantial percentage of their components locally. Although these incentives are meant to entice international players, they also impose a strict localisation process that slows down and makes it difficult for players like Tesla and BYD to enter the market.
A key consideration is India's entrenched local automakers. Players like Tata Motors, Mahindra & Mahindra, and Maruti Suzuki have had decades of experience refining their knowledge of the Indian consumer taste, pricing matrix, and challenges of Indian road conditions. They design their vehicles to be budget-friendly and built to withstand local conditions, rendering them extremely desirable in a cost-conscious market.
Conversely, even if BYD or Tesla were to ever produce models at lower prices, their premium brand reputation and resultant higher production cost would restrict their appeal to no more than a niche portion of the market.
Regulatory barriers further add to the difficulties for foreign entrants. Local manufacturing is promoted by Indian government policies, and stringent foreign direct investment (FDI) norms are imposed.
For example, Chinese firms such as BYD have been subject to increased scrutiny and regulatory impediments in the backdrop of geopolitical tensions and national security issues. These actions have not only suspended BYD's investment proposals but have also resulted in a climate where any serious penetration by foreign firms is subjected to wary regulatory scrutiny.
Penetration of the EV market in India is in its early stages, current estimates put it at barely 2 percent of the overall auto market, with the goal of 30 percent by the year 2030.
The early stage is both a challenge and an opportunity. On the negative side, there are limited charging facilities, fear of range, and a consumer "wait-and-see" mindset that slow down the rate of adoption. In return, these very same factors present domestic players an opportunity to construct a strong, locally adapted ecosystem free from the disruptive jolt of intense worldwide competition.
Investments by locals in the key supply chain elements further support the Indian manufacturing base. Tata Motors, for instance, is going all in on vertical integration by investing US$1.5 billion to open a battery gigafactory in India. By manufacturing lithium-ion cells locally, Tata not only saves on costly imports of batteries but also insulates its supply chain from global price fluctuations.
It is likely to lower production costs in the long run, further making locally assembled EVs more competitive. Other local giants such as JSW are also considering entering their own EV brands, intensifying the rivalry further in favor of indigenous companies.
Tesla, with its image of innovation and advanced technology, has a herculean task on its hands in India. The premium pricing strategy followed by the company and direct-to-consumer selling model have been successful in developed markets, but might not cut ice in a market where price and strong after-sales support are critical.
Even if Tesla launches a low-cost variant, it may take time to overcome the twin challenges of steep tariffs, localisation, and inferior charging infrastructure to achieve substantial market penetration.
It is on a multidimensional platform that the strength of the Indian auto market is legitimated against a possible monopoly of Tesla, BYD, or any other international player. Very steep import duties combined with strict localisation norms form the stiffest hurdles.
On the other hand, a competitive structure is intensely tailored to Indian consumer needs because of the entrenched position of domestic players with massive local investments in their supply chains. Moreover, these present hurdles of regulation and FDI only complicate the environment into which an overseas player will have to step, ensuring that even as global EV players throw their hat in the ring, the majority of the market remains firmly embedded in the position of veteran homegrown players.
Coming to India is being done in a way that the country marches onward toward electrification. These steps and investments would put the Indian automotive industry on a bastion of indigenous power in this international competition.