Are Auto Stock Sectors In India Really in Trouble with Entry of Tesla?

Tesla's long anticipated entry into the Indian market has sent shockwaves through the investor community triggering a selloff in Indian Auto stocks. The shares of Indian Automotive giants like Mahindra & Mahindra and Tata Motors have seen the effect of this. The M&M share price has seen a decline of 5% this week while Tata Motors share price is close to hitting it's 52-week low.

However, if we look closely towards the Tesla strategy in the Indian landscape and key data points then one can say that this panic is really overstated. Rather than posing as a threat, the entry of Tesla could act as a catalyst for growth in India’s EV ecosystem.

Let’s understand the implications of Tesla's arrival and learn whether the Indian automotive stocks are really in trouble.

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Tesla Vs Indian Automakers- Just a Knee Jerk Reaction Or A Trouble?

The mere entry of Tesla into the Indian market has sparked a wave of panic among investors. It is similar to the pattern when global giants enter a new market. For instance, when Apple ventured into India’s smartphone sector, stocks of local manufacturers like Micromax saw an initial dip, only to recover as the market adjusted.

If we look at the data on Indian car sales, then it supports this perspective. In 2023, the Indian passenger vehicle market recorded sales of over 4.1 Million units as per SIAM, and of these, just 2% accounted in the form of EV sales.

Auto stocks in India are currently seeing a correction in the overall trend. In the long run the auto sector stocks in the India can see a growth.

Import Hurdles, GST and Pricing Mismatch: A Mixed Bag of Odor for Tesla

One of the biggest challenges for Tesla in the Indian market is it’s pricing. It’s cheapest model Tesla 3 is sold at $35000 (Rs 31 lakh) in the USA while the average selling price of cars in India is less than $25000 (Rs 19 lakh). Even if Tesla lowers its price, it would still target premium consumers rather than the general market.

The second biggest challenge for Tesla in the Indian market is high Import duties. India imposes roughly 70% duty on the EV’S below $40000 (Rs 35LAKH) and 100% above those. The new EV policy might benefit them a little but only if Tesla spends over $500 Million (Rs) investment needs and turnover targets. Meanwhile, establishing a local manufacturing plant would take years and substantial capital—Tesla’s Gigafactory in Shanghai, for example, cost $2 billion. Until then, imported Teslas will remain expensive, reducing their appeal in a price-sensitive market.

The third biggest issue for Tesla in India is GST. GST charges give a direct benefit to EVs, charging them at 5% compared to 28% for ICE cars, and extra cess that can take the effective rate up to 43% for big models. This difference reduces the tax charge on EVs, potentially in favor of Tesla. However, as they are imported cars, Teslas are charged hefty duties that outweigh this benefit. For example, a $35,000 Tesla Model 3, after a 100% import tariff, would be priced at INR 58 lakh before GST, and the 5% GST would add another INR 2.9 lakh—making it more than INR 60 lakh. By comparison, a locally produced Tata Nexon EV, which is priced at INR 17 lakh, pays only INR 85,000 in GST. GST advantage is out of reach until Tesla localises manufacturing.

These three major issues can create major trouble for Tesla. Meanwhile, the motor stocks in India can see a growth and move to a new high in the future

Conclusion: A Catalyst, Not a Crisis

Tesla's entry into India has rattled investors, but the data points to a different picture. While EV sales have seen constant growth, Tesla’s premium pricing, import challenges and the dominance of local players might limit its impact. Tesla's arrival can accelerate India’s EV transition, driving an ecosystem for growth.Investors should trade carefully while investing in the automotive stocks of India.