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Why Tesla’s 20-million electric vehicle goal could next take Elon Musk to India

  • Tesla reported its fifth consecutive quarter of profits on Wednesday, but operating expenses jumped 33% to over $1 billion as Tesla constructs new factories in Austin, Texas and Brandenburg, Germany, and it continues to ramp its Shanghai, China, plant.
  • Tesla CEO Elon Musk said of new factories, “we’ll start off very slow at first and then become very large.”
  • Tesla’s global ambitions run to as high as 20 million vehicles by 2030, and Musk also has recently been talking about entering India, which could reach 10% of Tesla demand within the next decade.

Tesla and its CEO Elon Musk are focused on building out factories around the world to complement its Fremont, California, electric vehicle plant where the company started. The EV maker spent over $1 billion in the past quarter including on new factories in Austin, Texas, and Brandenburg, Germany, and Musk commented after its Wednesday third quarter earnings that he is “amazed” by the progress at the Shanghai, China, Gigafactory. Tesla thinks it can reach 20 million vehicles by 2030.

“I’m not saying for sure we’ll hit 20 million vehicles,” Musk told analysts and investors on the conference call. “But it does seem like a good goal to have because that would mean that we’re replacing 1% of the global fleet per year.”

One question more Tesla watchers have been asking about that global EV revolution is, when will India become a part of it?

The topic of an India entry for Tesla did not come up during Tesla’s earnings call on Wednesday, but recently Musk did Twitter-tease Tesla’s imminent foray into the Indian market. For the past few years, the billionaire auto and energy tycoon’s default Twitter response to Indian fans asking about Tesla’s India launch plans has been “soon” or “next year.”

He said that in 2017, repeated it in 2018, then again in 2019 and more recently on Oct 2. Musk’s October tweeting assured Indian supporters the company would be in India “next year for sure” along with a “thanks for waiting” acknowledgement. 

The Twitter comments sent Indian fans into a tizzy. “The advent of Tesla India will give an exponential and unprecedented push to the EV market in India,” wrote one user. “Have to get a Tesla even if I have to sell my wife,” joked another fan.

Expectedly, Musk’s comments also touched off an explosion of fawning pieces in the local media.

Of course, the truth is Tesla has not entered India contrary to Musk’s past Twitter proclamations. And few Tesla experts were surprised.

But could this time be different?

With manufacturing pace ramping up at its plants in U.S. and China, growing profitability, a healthy cash flow, a cheaper car on the way, and battery prices falling, Tesla has never been better positioned to conquer new markets, including India.

So convinced are some analysts that the tweets are finally going to become reality, they believe the big India announcement could be weeks away.

Why 2021 could be India’s year for Tesla

Craig Irwin, an analyst with Roth Capital, says details of Tesla’s India launch could be made public towards the end of the year.  “We have channel checks from a couple months back that indicate the entry into the Indian market is very high probability for 2021, with a probable announcement in late 2020,” he said, claiming that “Tesla is in the process of selecting a site for a manufacturing facility in India.” 

“Channel check” is industry parlance for conversations with trusted contacts and proprietary research.

It helps that after years of burning through piles of cash, the EV maker is finally profitable. This quarter’s earnings were the fifth-straight profitable one for the company and it had a cash balance of over $14 billion, and free cash flow of $1.4 billion in the quarter. But it is planning to spend.

Musk said after the earnings report that in 2021 and 2022, Tesla plans to spend far more than it previously forecast — $2.5 billion, especially on new factories and expansion.

“For Tesla, it’s different this time because they have more money than they’ve ever had and with the [Model] 3 and Y out, Musk may have more time to focus on expanding there [India],” said Morningstar equity analyst David Whiston, adding that if Musk“wants to do it and can get a good relationship with [Indian Prime Minister Narendra] Modi like he has with the Chinese government then it’s more likely to work out.”

Vivek Wadhwa, a distinguished fellow at Harvard Law School’s Labor and Worklife Program, has been exchanging emails with Musk over the years about India, and said the Tesla CEO has expressed his intentions of entering the Indian market. “There is no better time than now, given that his battery costs have dropped and he is expanding his manufacturing capabilities,” said Wadhwa, author of The Driver in the Driverless Car: How Our Technology Choices Will Create the Future.

Musk’s recent India tweet could hold the key to the automaker’s plans for the second-largest economy in Asia. In the last week of September, Reuters reported that NITI Aayog, a federal think tank chaired by Prime Minister Modi, shared a proposal for offering $4.6 billion in incentives to companies setting up advanced battery manufacturing facilities. The proposal is currently being reviewed by the Indian government.

Following this, Elon Musk tweeted about Tesla’s India foray next year, noted Tokyo-based Atsushi Kawahashisenior director, automotive, at J.D. Power. “If it [the NITI Aayog proposal] goes through, it will attract EV battery makers and manufacturers, including Tesla, who may consider not only selling cars, but also setting up their gigafactories in India,” Kawahashi said.

Tesla did not respond to multiple requests for comment.

Tesla’s India opportunity

India’s potential as a lucrative market is undeniable. For Tesla, India represents a big opportunity. Just how big is difficult to determine.

“India will be as big as China, and maybe even bigger as there are no trade or geopolitical conflicts impacting the background,” said Roth Capital’s Irwin.

India has a large population and Musk wants to bring Tesla everywhere so people can stop using internal combustion engine vehicles and reduce carbon monoxide emissions, said Whiston, alluding to Indian government’s renewable energy ambitions.

Dan Ives, managing director at Wedbush Securities, said Musk has had a few false starts in the past, but contends India is and will remain a high priority for Tesla and its CEO in the coming years. “The demand picture has changed and now with Giga 3 build out in China, Berlin and Austin, India is next,” he said, pointing to EV demand and the population growth in India as indicative of a massive market.

According to Ives’ projections, in five years India will represent 10% of overall demand for Tesla.

What also considerably increases India’s relative attractiveness is the uncertainty posed by the ongoing U.S.-China trade spat and China’s questionable intellectual property regime.

“I am sure Elon [Musk] is worried about the tensions between the U.S. and Chinese government,” Wadhwa said. “Tesla could be kicked out at a moment’s notice. The Chinese government would not hesitate to do this once it has stolen whatever technology it needs from Tesla.”

Musk praised the China factory and its team on the earnings call, saying, “In terms of capacity build out, we’re making progress on three major factories. We’re continuing to expand Shanghai significantly, which is going incredibly well. The Tesla China team is just, I mean, incredibly good. Super smart, work hard. It’s like I’m always amazed by how much progress the Tesla China team makes. It’s beyond all reasonable expectations.”

Kawahashi said balancing optimism about Tesla’s India prospects while tempering expectations is key. “While Tesla is likely to have a huge appeal among Indian car buyers, it will be up against formidable challenges,” he said. “The Indian car market is extremely price and value conscious, with about 70% of the sales below Rs. 1 million (about $14,000).” 

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