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The challenges facing the auto industry should not hold it back from showcasing its stuff at the auto expo that began on Wednesday. But it would do well to look at Tesla, which has become the world’s second most valued carmaker. Mint looks at the lessons Tesla holds for India.
Why has Tesla caught the fancy of investors?
Investors are impressed with the strong customer response in China, the world’s largest market for electric vehicles (EVs), to Tesla’s Model 3 car. The company’s plans to ramp up car-making capacity in that country as well as that of its Model Y in California have added to the lure. Elon Musk’s company plans to set up a Gigafactory in Germany, its first in Europe, and aims to roll out the first product from there next year. The company’s manufacture of battery packs, the most critical component in an electric car, at its Gigafactories in New York and Shanghai has attracted international buyers.
What was holding Tesla back so far?
Tesla has been a sort of a pioneer in the electric car segment, leaving automakers such as Toyota and Volkswagen to play catch-up. However, legitimate investor concerns such as consumer acceptance of its costly cars; the high debt, which stood at $11.8 billion as on 31 December; delays in car deliveries and quality issues plagued the company and its valuations. The business did not generate enough cash, raising concerns about the company’s ability to service its debt. Musk’s own maverick nature and his run-ins with the US regulator Securities and Exchange Commission in 2018 did not help.
What was Tesla’s last quarter performance?
Tesla’s $105 million fourth quarter profit, though 25% down from a year ago, was a surprise. Total revenues rose 2% year-on- year to $7.38 billion. For most of 2019, nearly all orders came from new buyers. The company generated $1 billion in free cash flows in the last quarter. It also began ramping up capacities at its Gigafactory in China and car unit in Fremont, US.
What does India lack in going electric?
The government has been pushing for renewable sources to produce cleaner fuels to run cars. End-user acceptance depends on several factors including affordability. India lacks in lithium, cobalt and nickel that are critical for making batteries. Private participation in mining, now being encouraged by the government, needs to increase. For this, land acquisition norms should be eased and labour laws made flexible. Another critical input is charging stations, which have to be an outcome of government-industry cooperation.
How far is India away from embracing EVs?
India has been a market for cost-conscious buyers of hatchbacks, with Maruti Suzuki India Ltd as the leader. Even as rivals have launched EVs, it continues to pitch for hybrid vehicles. That India’s largest passenger carmaker, usually proactive in introducing new concepts, isn’t yet willing to go full throttle in this direction shows India may be years away from embracing EVs. At a very optimistic level, an electric entry-level car will not cost less than ₹10 lakh, raising a question about its affordability in the Indian market.