On the offset I am very hopeful of getting my long awaiting Tesla (reserved in April 2016) this year. Hoping that Model Y is also introduced with Model 3.
It has been a breathtaking year for Tesla in spite of the troubled times the world has seen due to the pandemic. For me personally it's been amazing to see both Tesla and $TSLA grow. Tesla, the company seems so much more mature now, especially with execution. It's still agile wrt product development and manufacturing timelines.
The recent indications from Elon, regarding a goal of 20 million Teslas produced per year by 2030 is very ambitious and inspiring to see. What I am hoping for is India playing a big part in this.
The usual arguments against India / Indian market is that the addressable market for Tesla is too small FOR NOW . This is true to a certain extent, but the most important part is the "for now " part. No one expects Tesla to sell in hundreds of thousands with the current product portfolio. Tesla also has very ambitious goals for its energy generation, storage and distribution products/services. The automobiles business and the energy generation, storage and distribution products/services are the two main business verticals that Tesla will have for the Indian market. Lets deep dive into both :-
Tesla Indian Automobiles Vertical:
STAGE 1: CBU Imports of SR+
Tesla currently intends to enter India to begin with imports of CBU (Completely Built Up) units. As I understand the catch here is that there is no distinction between an ICE CBU import and an EV CBU import. Hence the import duty for a car of value less than $40,000 is 60%. The only feasible model is MODEL 3 SR+ if the price is to be kept below $100,000.
Let's consider 2 scenarios for this :-
1. SR+ is imported as a CBU as is and the car with Basic Autopilot software included. Then the approximate cost to customer excluding insurance will be as follows:-
(others include some % of social welfare surcharge & some other costs I maybe unaware of, can be higher as its just rough calculations.)
2. What Tesla might be able to do is bifurcate basic autopilot cost and the car cost (hardware) . Software cost can be reduced in the CIF price (which is considered for import duty). This will help save some on import duty. Then Tesla India can just charge 18% GST on software sale instead of paying 60% import duty and other taxes as software doesn't have a import duty structure if sold by a India registered entity.
With respect to the product 15 mm increase in ground clearance will be required, such that the ground clearance is atleast 155-160mm. This is very critical to India spec Model 3.
The competition to SR+ will be from Mercedes C Class, BMW 3 Series and Audi A4, all of which cost around $70,000 due to road tax of around 20% vs 0% for EVs. Even basic adaptive cruise control is not part of these offerings. Hence even CBU Model3 SR+ will be attractively priced.
STAGE 2: Small Assembly plant for local assembly
As we see from Stage 1, Tesla may just sell a few thousand cars at the $65-70,000 price tag. The way to make it more affordable is by investing a small amount into an assembly plant. The duty for SKD (Semi Knocked Down) vehicles with pre-assembled battery packs, motors, motor controllers, chargers, power control units, energy monitor contractors, brake systems, electric compressors not mounted on a chassis or a body assembly is only 15% vs 60%(on SR+) for a CBU car. With that the possibilities are so much more.
This is a rough calculation. Having not reduced the total cost for the SKD kit, I have considered the assembly/other expenses to be lower. Approximate price for SR+ lowers by ~$18,500 when assembled locally. Similarly Model 3 LR will cost ~ $61000 and Performance around $72,000. Model Y LR will be ~$66,000 and performance Y around $77,000.
All these locally assembled models will make Tesla the predominant brand in the modest 50,000 cars/year India luxury model. Even at a 25% market share (which I think will be more) , that’s 12,500 cars/year or $625 Million revenue. The capex for the small assembly plant and Supercharger network will most likely cost less than $100 Million. Hence if Tesla has a good local team it seems a no brainer.
STAGE 3: Large Assembly plant for local assembly of $20,000-25,000 Tesla, Megapacks for industry & utilities and local 4680 battery plant.
This is where I see the most growth. From stage 2 Tesla can get a reasonable feel for the Indian market . Once the Tesla $20-25,000 car is introduced and can be planned for local India manufacturing and assembly, it’ll be a game changer.
Sales of some cars at these price levels (Just sticker price, not considering TCO):
1. Kia Seltos: 7,500 /Month
2. Hyundai Creta: 9500/Month
3. Toyota Innova: 5000/Month
4. MG Hector: 2500/Month
A few more models and brands sell in this price range. Many of these cars are larger vehicles, but they have been considered by me only to demonstrate purchasing capacity of potential buyers. So considering a total 25,000 cars/month sold and a 25% market share(both conservative) translates to an annual possible sales of 90,000 Tesla $20-25,000 cars. That’s close to $2.1 Billion in sales. We have seen the phenomena of ‘Tesla Stretch’, & it will happen here too. Tesla brand has a huge attraction amongst the youth and that will create more demand. Add to this the huge demand megapacks will have considering that India is focusing on renewables a lot. Tesla can maybe can also do India specific lower kwh Powerwalls as many homes already have UPS power backup. Hence due to the long life of Tesla power packs they may find replacement and new market demand.
Other than the local market, India can also be a second base of export for Tesla to other countries and have a backup to Tesla China. Also as battery prices drop Tesla can go even lower in the price range and capture more market with small hatchbacks/sedans.
Tesla energy generation, storage and distribution products/services Vertical:
This can be planned along with Stage 2/3 of Tesla India Automobile expansion. To the shock of many people India already has 38% of its installed capacity in the form of renewables.
As renewables are the lowest cost power plants currently, majority of the new additional plants will be solar and wind. India is likely to add 80 GW of renewable energy capacity in the next 5 years. I don't see Tesla having a distinct advantage in the solar panel product line(until & unless it can make solar panels very competitively). Grid scale megapacks is where it’ll have a significant opportunity.
Tesla India R&D Center is also apparently in the works as per some officials. This can maybe design India specific future models and software refinement.
Conclusion:
I may have missed out on many more points. Apple lost the advantage and allowed Samsung and OnePlus etc to dominate the market by not having a local assembly plant. Today Apple has woken up and some of the latest iPhones are being assembled in India.
I don't want Tesla to make the same mistake as Apple and lose the early entrant advantage by ignoring the India market. As I have mentioned in my earlier write up , one cannot accelerate the world’s transition to sustainable energy and transportation by not taking along India, a country that contributes 17 % to global population and 4.5% to global income (PPP terms). Tesla should be at the forefront of EV revolution in India, as it has been elsewhere in the world.
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