Musk, Tesla, India and China

Elon Musk’s abrupt cancellation of his India trip for China sparks great disappointment, revealing Tesla’s pressing business priorities.

Elon Musk called off his planned, announced, and much-publicised visit to India at the last moment citing unavoidable Tesla commitments. And then, went on an impromptu visit to China instead. This has upset quite a few people in India, especially some in the Indian government who had been led to believe that Musk would announce an investment of $2 billion plus in India for a Tesla manufacturing plant and also announce other business plans. The red carpet had been rolled out for the maverick tech Moghul in anticipation. And even the new EV policy seemed designed to attract Tesla to the country.

To say that the Indian government was not amused would be an understatement. But a second look shows that Musk’s sudden cancellation of his India trip and his flight to China was indeed a part of “unavoidable Tesla commitments”. His flagship EV business is facing enormous heat of late – and China is after all his second biggest market, just behind the US, and also the location of some of its biggest plants.

Tesla has been plagued with problems of late. Its EVs no longer look the best in the market. Competition has caught up – and even surpassed it in some areas. Chinese EV manufacturers like BYD and others are hot on its heels. Briefly, BYD dethroned Tesla as the world’s biggest EV maker though Tesla has clawed back its crown. But Tesla’s margins are shrinking and so are sales – and it has talked about increasing the production of existing factories by 50% before setting up any new plants. And that would automatically mean that the plans for setting up Tesla manufacturing facilities in India and Mexico are on hold – at least for the time being.

Tesla’s profit margins have come down and its much-hyped Cyber Truck has proved to be a damp squib with criticism about its build quality. Musk has announced that Tesla will now also introduce cheaper EV models to compete in the lower ends of the market. This is probably because of the surging sales of EV makers who sell more affordable cars.

And finally, the self-driving features of Tesla’s cars have long flattered only to deceive. Musk is trying one more time on this front and his China trip was partly about that. Tesla was using Baidu’s mapping system in China, but a new agreement struck with the Chinese tech firm will help Tesla introduce its advanced assisted driving features in China. Whether it will help Tesla outplace its local rivals or not will be known only after it has rolled out and consumer feedback comes in. But the Tesla stock price, which had been falling for some time, showed a sharp spike once the deal with Baidu was announced.

In essence, Musk prioritising China over India for a quick trip is perfectly understandable when you see things from the view of Tesla’s business imperatives. China is both more important to Tesla and Musk from a manufacturing point of view as well as a market. India could wait, therefore.

Where does that leave India which was hoping for a big Tesla investment and perhaps also business deals for Musk’s satellite broadband business? Frankly, while a $2 billion or more investment from Tesla would have been exceedingly welcome, India should not depend on Musk’s company for its own EV plans.

As the earlier column pointed out, the Indian government’s EV policies and plans need to be attractive to all potential EV investors and not just to Tesla. It also needs to be fair to existing Internal Combustion Engine (ICE) vehicle makers who have invested billions in India over the years.

The current policy also needs a hard relook to ensure that it is focused on high value-added manufacturing and not just assembly of vehicles. This means looking at the entire ecosystem – particularly batteries. Currently, Li-Ion battery production is dominated by China and most Indian EV makers procure their batteries from there.

Finally, Indian policymakers also need to realise that they need to work to ensure that India is more attractive both as a manufacturing destination and a market for all EVs, from the low-end to high-end. Currently, India’s entire EV sales are a fraction of that of China. Similarly, India has a long way to go before it becomes a viable alternative to China as a manufacturing hub. Higher labour productivity, quality and fewer frictions in land procurement and lower power prices are all things that need a lot of focus from both union and state governments.

Tesla in a marquee name and attracting it would have been important symbolically. But in the larger scheme of things, Musk choosing to rush to China while cancelling a proposed and much-hyped trip to India is less important than most believe.

Written by Prosenjit Datta. Datta is the former editor of Business Today and BusinessWorld magazines.

Views are personal and do not represent the stand of this publication.