Elon Musk is back in India with Tesla and Starlink. Tesla’s entry was shelved twice over the last 2-3 years. The messaging was: we are not interested in a firewalled market. With the recent tariff talks between Donald Trump and Prime Minster Modi, news of hirings in India, and the first Tesla shipments coming in a few months, the buzz is back on the street.
Trump and Musk have been at pains to point out India has the highest tariffs in the world at 100 percent. The fact is it is even higher. The Basic Customs Duty (BCD) on fully built EVs priced above $40,000 is 70 percent. Add to that the Agri and Infra Cess of 40% and the effective import duty on Tesla cars is 110%.
Around mid-2023, the Union government set about making things easier for importing EVs with a view to embracing the green revolution. A new EV policy was cobbled to allow import of luxury electric cars with a low duty of 15%.
As is the wont in Indian policy-making it comes with heavy ifs and buts. The caveat in this case was to qualify for the lower import duty, the foreign company must set up local manufacturing with a turnover of at least Rs 2,500 crore, and invest a minimum of $500 million. This queered the pitch for foreign auto makers, and from Elon Musk there was loud silence.
Is Tesla a threat?
All this is about to change now after the recent Trump-Modi meeting. The 2023 EV policy, along with the rules, is due to be notified and the government is signaling it will be watered down to allow for lower import duties. Tesla effectively will be allowed to come in, at first, with direct imports; and maybe later with some commitment to setting up assembly plants and an indigenization process through local manufacture of parts.
‘Make in India’ will have to go in the face of Trump’s clarion call of ‘Make in America’. In a recent joint interview along with Musk on Fox News’ Sean Hannity show, the US President made it clear he didn’t want manufacturing to leave American shores. Referring to Musk, Trump said: "Now, if he built the factory in India, that's okay, but that's unfair to us. It's very unfair."
As the protected auto market opens out, do homegrown carmakers like Tata Motors and M&M need to worry? Not from Tesla. Anand Mahindra played down the Tesla threat pointing out he and the Tatas are still around after the first wave of foreign players like Daewoo, Ford and General Motors have bitten the dust.
After all, Tesla’s price-points are way beyond Indian affordability. Tesla’s cheapest models – Model 3 and Model Y – will cost Rs 35 lakh and Rs 50 lakh, respectively. What the locals need to fear are BYD and other Chinese and Korean models who have far better engineering skills than their Indian counterparts, and are more affordable.
Starlink coming
While the market impact of Tesla is still being debated, Starlink -- Elon Musk’s satellite-based broadband network -- is shaking up the communication market intensely. The Starlink proposal is on the table before the space regulator, the Indian National Space Promotion & Authorisation Centre (IN-SPACe) and is likely to get an approval very soon.
There are other permissions to be got and there are security issues like setting up gateway and monitoring issues locally in India. However, given Elon Musk’s current elevated status in the US administration, these are unlikely to pose a problem.
What is significant is the Union government had, in October last, decided in favour of Starlink’s proposal to allot satellite spectrum via the ‘administrative route’ overruling pleas by Reliance and Airtel, India’s major broadband players, to sell spectrum through auctions to the highest bidder.
Musk had then cited the practice endorsed by International Telecommunication Union (ITU), of sharing rather than auctioning spectrum since it is a natural resource. Union Communications minister Jyotiraditya Scindia quickly agreed saying spectrum “will be allocated administratively in line with Indian laws”; and pricing would be worked out by the telecom watchdog.
Reliance, on the other hand, had submitted that foreign satellite operators had the advantage of bundling additional services like voice and data. Therefore, auction was one way of achieving a level playing field.
The fact is the Ambanis are the ones with the first-user advantage. They have 440 million telecom users, and 8 million wired broadband connections representing a 25% market share. By excluding foreign players like Starlink, Reliance and Airtel want to further consolidate their monopoly over digital communication.
By opening up space spectrum to include Starlink, as well as Amazon’s Kuiper and Britain’s OneWeb, the government will help break the duopoly of Reliance and Airtel and make broadband services more affordable. Satellite broadband services are moving fast. It’s ability to reach remote areas will be a boon to integrating rural India with the internet highway.
It’s a huge mass market which is estimated to grow to $2 billion by 2030. Starlink has international experience and the ability to provide high quality services to even conflict zones like Ukraine. If Starlink gets it right, there’s good money to be made.