Here's what India should be doing on EVs
Here's what India should be doing on EVs
India should build on its strengths while borrowing from China's industrial playbook.
India is in an excellent position to capitalize on the electric vehicle manufacturing boom for several reasons:
India already has one of the largest auto manufacturing sectors in the world, producing over 5 million vehicles in 2022.
Indian auto giants have already been investing heavily in EVs.
Tata Motors, which already has 80% of India’s EV market, is betting that EVs will make up 25% of its car sales by 2025.
Maruti Suzuki is adding a 32 billion rupee ($390 million) production line for EVs at its existing Gujarat factory.
Mahindra, whose EV unit was valued at 806 billion rupees ($9.8 billion) after a recent fundraising round from Temasek, says it “expects electric models to make up between 20% and 30% of its total SUV sales by March 2027.”
The Indian government has been supporting domestic EV production through its Production-Linked Incentive (PLI) scheme, which offers significant subsidies in the range of 13-18% for EV sales.
India should bring in foreign EV makers to turbocharge its domestic industry
India should take the following steps:
Negotiate with multiple foreign EV makers at the same time to set up EV factories in India. India should play foreign EV makers like Tesla and BYD off each other as leverage. This is what China did with high-speed trains, playing the major international train manufacturers like Siemens and Alstom off each other to get a better deal. Even if India doesn’t ultimately want a factory from, say, BYD due to national security concerns, India should still keep open the possibility of a deal with BYD as a bargaining chip in negotiations with Tesla.
Move fast to seal a deal, even if it means significant concessions on subsidies. “Paying” a foreign EV maker to build a factory in India through subsidies and other forms of state support might seem unfair in the short term. But it should really be seen as a longer-term investment in India’s broader EV industry. Speed is key here because this early “land grab” phase of the EV market could shape which firms and countries become the established players as the market matures.
Let the foreign EV makers get comfortable. Don’t place too many restrictions, such as domestic content requirements, too early. You don’t want to spoil the business before it has a chance of being successful. The goal in this phase is twofold. One is to develop the broader domestic EV market and get Indian consumers excited about EVs. The other is to get the foreign EV maker, like Tesla, to really put down roots and commit to the Indian market.
Squeeze hard to swap out the EV supply chain with domestic manufacturers. Once the initial ramp-up phase is complete and cars are swiftly rolling off the production line, India should tighten the screws and raise the pressure on foreign EV makers to increase domestic content and build up Indian suppliers. This might start with either lower-value segments of the supply chain or with sectors of the industry that India is already strong in, like traditional auto parts. Batteries are much more difficult and might take longer, but developing Indian-made batteries should ultimately be the goal because of their huge share of EV value.
The goal is not to sell India-made Teslas or BYDs per se. The goal is to build an ecosystem to support Indian EV manufacturers.
China has used this industrial playbook repeatedly. Bring in foreign firms, ideally industry leaders who have best-in-class technology and know-how. Offer generous subsidies and state support to make them feel like it’s a win-win partnership. Use the foreign firms to build up domestic suppliers. And finally launch your own homegrown competitors, leveraging your now upgraded supplier ecosystem.
China did this with high-speed rail, giving top train manufacturers like Siemens and Alstom access to the lucrative Chinese market in exchange for setting up joint-venture production facilities in China. China’s own train manufacturer CRRC later became so powerful that Siemens and Alstom had to merge their train businesses to remain globally competitive. China did this with the iPhone, even building housing for Foxconn workers, and then later launched a whole slew of Chinese brands like Xiaomi, Oppo, and Huawei.
And China did this with EVs, allowing Tesla’s Shanghai Gigafactory to be a wholly foreign-owned subsidiary instead of a joint venture with a Chinese automaker as is typically required. China made this concession because they knew how valuable Tesla would be to boosting China’s EV supply chain. As one New York Times article put it: “Tesla’s huge factory in Shanghai works with local suppliers to make increasingly sophisticated components that are helping them go head to head with Western and Japanese auto suppliers.”
Politically, this is a difficult move to pull off. Existing Indian automakers are already lobbying hard to prevent a foreign competitor like Tesla from entering their home turf. Other critics will say that overly generous concessions give the farm away merely to enrich foreign firms. But the message should be that this is not about winning a single Tesla or BYD factory per se but about building out India’s manufacturing base more broadly.
To this end, India has taken a large step in the right direction with its new EV policy, which reduces tariffs from 100% to 15% for imported EVs over a certain price for 5 years in exchange for a $500 million investment and a promise to start manufacturing in India within three years. This was originally a key condition from Elon Musk who had been reluctant to build a Tesla factory in India before being able to really sell Teslas in the Indian market. Before the Shanghai Gigafactory, Tesla was already selling close to 15,000 cars in China, making up 17% of Tesla’s 2017 revenue. It seems reasonable that Tesla would also expect some degree of market access in India for committing to a factory there.
There are many differences, of course, between the two nations. But lessons from China could help India to develop its own homegrown Teslas and BYDs.
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Addendum (22 March 2024)
A joint venture was announced between India’s JSW Group and Chinese SAIC-owned MG Motor that aims to sell 1 million EVs in India by 2030. JSW’s Sajjan Jindal: “We will manufacture them in India and also export them to the most developed markets.” This partnership is interesting in several ways:
It’s a partnership between a major Indian firm and a major Chinese firm, which is rare in the post-Doklam era. (Remember how India seemed to object to a JV with BYD on national security grounds?) Apparently it was a way for MG Motor to deal with problems in India stemming from its Chinese ownership, according to an Economic Times report:
“In the absence of fresh investment from SAIC owing to its Chinese origin, MG’s expansion plans in a market it entered four years ago, had hit a roadblock. Foreign direct investment from China is subjected to close government scrutiny owing to the geopolitical tensions between the two countries.”
Rather than building up SAIC’s brand in India, the JV is centered on the MG Motor brand, originally an established British brand that was eventually acquired by SAIC. While SAIC, the largest of China’s “Big Four” state-owned automakers, has a major brand presence in China, it seems to prefer using the MG Motor brand in foreign markets. It reminds me of how Volvo and Polestar are a low-key way for a Chinese parent company—in this case Geely—to sell EVs in the US market. Of course there are also major differences, like the fact that Geely only has a majority stake in Volvo Cars whereas MG Motor India appears to be wholly owned by SAIC.
The explicit goal is to manufacture in India and eventually export to developed markets, perhaps even Europe. The ambition is commendable, and the goal should always be to eventually go for the biggest markets, which are international (and which is what Chinese EV makers are doing). One question is whether having a Chinese partner will one day turn into a liability if attitudes toward Chinese EVs continue to turn more negative in some parts of the world, at least from a trade perspective.
India has had an on-and-off rocky history with foreign investment (e.g. Vodafone's retroactive tax). The strained relationship with China elevates risk to another level (e.g. Xiaomi). If the U.S. is low on the risk-adjusted priority for Chinese automakers and supply chain, then India might be right there with it. It will be interesting to see how both sides manage through this.
India's car market (especially factoring in growth) that you can put in place a reciprocal market access agreement. This would not work with China-Japan or China-Korea, both of which do not have large domestic markets relative to domestic manufacturing capacity.
Hey. great points. Only two things:
1) While India has a big automotive market that is only to get bigger, I don't think Tesla can have the same experience in China as India, simply because they are not likely to sell as many cars in India perhaps.
2) The JSW group partnership is interesting, but they don't really have a background in the industry. They are a prominent group, but not much background.