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Tesla (TSLA) Kick-Starts Indian Journey, Sets Up Subsidiary

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Tesla Inc. (TSLA - Free Report) has officially commenced its operations in India by establishing a fully-owned subsidiary in Bengaluru. Further, it plans to set up a research and development (R&D) unit and eventually, a manufacturing facility for its electric vehicles (EVs) in the country.

Reportedly, Tesla's Indian arm was registered on 8 Jan, and is named Tesla India Motors and Energy Pvt Ltd. The unit will be owned via Tesla Motors Netherlands BV and has three directors, Vaibhav Taneja as chief accounting officer, entrepreneur Venkatrangam Sreeram and David Jon Feinstein, a technical recruiter from the United States.

This development comes after a revelation by Nitin Gadkari, India’s Union Minister for Road Transport and Highway and Micro, Small and Medium Enterprises, confirming Tesla’s India debut in early 2021.

Karnataka Chief Minister BS Yediyurappa also took to social media confirming the news. Tesla is also in talks with other state governments of India like Maharashtra, Gujarat, Tamil Nadu and Andhra Pradesh to further spread its India operations in the states.

Seemingly, Tesla will begin operations in India as a sales company importing its vehicles into the country as completely built units (CBUs). The U.S.-based EV behemoth plans to import, distribute, sell, service, and maintain EVs and stationary energy storage systems and equipment, including solar panels in the world's fourth largest auto market. The first model to be offered for Indian consumers will be Tesla’s flagship Model 3, entry-level variant, initially priced at Rs 55-60 lakh, ex-showroom.

Tesla’s Long-Anticipated Entry in India

Amid the heightening climate-change concerns, it has become imperative for countries to resort to green means of transportation. However, the EV market in India is still at a nascent stage, with EV adoption less than 1%.

Nonetheless, the Indian government has targeted to cut carbon emissions by 30-35% by 2030 as well as cut down on crude oil imports in the nation in a bid to bring a green revolution.

Tesla’s latest set-up In India puts an end to years of wait and speculation. India has been long wanting that Tesla establish a factory in the nation. In fact, the India government has also emphasized that it wants to bring foreign investments to the country and create jobs. The nation also offers incentives on electric cars in its quest to reduce fuel imports and carbon emissions.

Tesla has always expressed its interest in expanding into the India auto market. In 2016, the EV titan, in fact, started taking pre-orders for Model 3, in various global markets, including India. Fans of Tesla in India paid the token amount of $1,000 to pre-order Model 3.

However, entering the India auto sector posed to be a massive challenge for the auto giant. In 2018, Tesla’s CEO Elon Musk blamed local regulations, which required automakers to source 30% of the parts domestically, due to which the automaker was unable to debut in the nation.

Nonetheless, last October, Musk confirmed plans of bringing the EV frenzy to India by entering the country in 2021.

Tesla’s major markets within India could initially be Bangalore, Delhi and Mumbai followed by other cities like Hyderabad, Chennai, Pune and others based on the demand for EVs. It is also anticipated that the EV pioneer will launch a direct sales model in India. The company controls its sales channels in other markets it operates in by selling its cars via the showrooms and centers Tesla owns. These centers are even handled by Tesla employees. A parallel approach is employed with after-sales support service too.

Moreover, Tesla’s entry in the nation comes at a time when India is revving up its charging infrastructure for a wider acceptance of electric vehicles. Last November, the government even invited bids for establishing advance chemistry cell battery storage facilities in the country.

Hurdles Ahead

Indeed, Tesla’s entry in India will kick-start an era of electrification in the nation. The news has garnered a lot of Indian audience attention over social media.

This raises the question of how fruitful and impactful the India debut will be for Tesla. The EV market in India is currently dominated by the more budget-friendly Tata Nexon EV, MG ZS EV and the Hyundai Kona. The only premium EV currently sold is the Mercedes-Benz EQC, with the Jaguar I-Pace to be launched soon. How Tesla manages to get accepted by this price-conscious market and become a mainstream offering here is a question that remains unanswered as of now.  

Nevertheless, if the company is able to capitalize on the brand name and convert its fanfare into tangible demand in India, it is set to ride the trending EV hysteria in the nation and create a niche market for its products there.

Tesla, peers of which include General Motors (GM - Free Report) , Ford (F - Free Report) and Volkswagen (VWAGY - Free Report) ,  currently flaunts a Zacks Rank of 1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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