In continuation to my earlier blog addressed to Elon and Tesla, I have reworked out the benefits that Tesla can have with a small general assembly line and how the cost and economics of such a line may work out to be. Please indulge me here.
The general premise of this blog is to highlight the total addressable market change that can happen for current Tesla products that may be ideal for Indian market for 3 scenarios as I mention below. This doesn't include the possible inevitable introduction of the $20-25,000 Tesla in 2021-22.
Scenario 1: Completely built units being imported directly from either Fremont or Giga China-
To begin the process this will likely be the most easy way to start things in India for Tesla. Tesla being the inspirational brand it is I foresee it capturing a huge portion of the luxury car market which currently stands at 40,000 to 50,000 cars per year predominantly in the tier 1 and tier 2 cities. Me having owned a few of the German luxury cars prior to going electric can vouch to the exorbitant running and service costs (in some cases more than what it costs in US).
Below is the cost economics for CBU imports:
Note : Revenue is based on US CIF Value aka $36990 & $39990. Calculations are rough, as I might be unaware of some things.
I have assumed 3,000 Model3 SR+ and 7,500 Model Y SR+ for the entire year. Revenue at these sales figures will be upwards of $ 410 Million. Tesla's avg automotive gross margin being 20%+ , and considering a 5% cost of operation in a new country, the additional gross profit of entering India in year 1 can be ~$ 62 Million, not bad right?
Things get interesting if a small general assembly/SKD (semi knocked down)/CKD (completely knocked down) plant is setup. That is where scenario 2 and 3 come in picture.
Scenario 2: SKD Units being assembled locally in India without any part localisation -
SKD units assembly helps in bringing down the duty by half immediately from 66% to 33%, though the cost of setting up a local assembly plan will offset some of the benefits to begin with.
Below is the cost economics for SKD Local assembly:
SKD kits being assembled locally brings down the cost to customer by almost 20% and I assume that will 2X the demand from the market more skewed towards Model Y as crossovers and SUV s are all the rage in India. I have assumed 5,000 Model3 SR+ and 12,000 Model Y SR+ for the entire year. Revenue at these sales figures will be upwards of $ 665 Million. The additional gross profit of entering India in year 1 can be ~$100 Million if SKD assembly is done. I have been very conservative in local assembly costs as I haven't decreased the total CIF import value for SKD kits. Even at these assumed low local assembly costs the yearly costs comes to $ 34 Million, which I think is very realistic cost for a SKD assembly plant with ROI being a year. Also "zero localisation" is assumed here, which I think can be a min 5-10% as India in the worst case as India has a robust auto ancillary manufacturing system.
Scenario 3: CKD Units being assembled locally in India without any part localisation -
CKD units assembly helps in bringing down the duty by 75% vs CBU imports and by 50% vs SKD assembly.
Below is the cost economics for CKD Local assembly:
CKD kits being assembled locally brings down the cost to customer by almost 40% vs CBU imports and around 18% vs SKD assembly. I have assumed 8,000 Model3 SR+ and 20,000 Model Y SR+ for the entire year. Revenue at these sales figures will be almost $1.1 Billion. The additional gross profit of entering India in year 1 of CKD assembly can be ~$165 Million. Again I have been conservative in local assembly costs as I haven't decreased the total CIF import value for CKD kits. Even at these assumed local assembly costs the yearly costs comes to $140 Million, which I think is more than enough for a CKD assembly plant. Also "zero localisation" is assumed here, which I think can be a min 15-20% in the years to come.
All the above financial scenarios are not considering the following:-
Autopilot value if assumed to be a $2000 option though a std with all cars, can be treated to be sold from Tesla India as software and need not be part of CIF value thus reducing costs by $1,000 for CBU imports (replace 66% duty+ 5% GST with 18% GST).
Huge stationary battery requirements Indian already has , and will exponentially need in the future considering the huge renewable energy push.
Market potential of the $20-25,000 compact car.