Policy Plunge

As Tesla’s Troubles Grow, Time To Ask How Far Will Indian States Go To Win Over Elon Musk

Indian states vying for the electric car facility would be mindful of the reality that potential large investors in other key sectors, too, may expect similar incentives and, also, that Tesla would now be more amenable to make reasonable demands

Now that Elon Musk’s trip to India has got postponed, it may be worth asking the questions that may have got buried thus far amidst all the excitement surrounding the earlier scheduled visit of the Tesla and SpaceX boss to the country in April.

To what extent will states like Maharashtra, Tamil Nadu, and Gujarat – which, as per media reports, are among those competing to host Tesla’s maiden facility in India – go in rolling out the red carpet to win Musk's confidence?

Maharashtra has the highest GDP among Indian states followed by Tamil Nadu and Gujarat. Would these states – which possess the requisite credentials for a Tesla plant as they are already to home to many automobile manufacturing facilities – be willing to break the bank, so to say, to win over Tesla? Or will they adopt a more measured approach in the matter?  

Would the outcome of the Lok Sabha polls – the results of which would be known in the first week of June – have a significant role to play in influencing the location of the Tesla plant in India?

These questions assume significance on account of the following.

The Incentive Dilemma

Tesla can be a big economic and political win for any state government given the promise that a mega investment in the form of an electric vehicle plant typically holds in terms of transforming local economies, job generation, and, also, in highlighting the business-friendliness of a region. A facility for electric cars could potentially entail an investment of US$2-3 billion.

On the other hand, though while capital infusion in the EV space is what each of them want as part of their growth agenda, the states mentioned before also seek large-scale investments in other sectors, where, too, the big investors may have to be similarly incentivised as Tesla.

Surely, none of these states may want to risk losing a large investment in a non-EV arena from an equally reputable company as Tesla because it couldn’t match or come close to offering the kind of incentives it had offered the electric car company.

State governments would be aware that Tesla may be more amenable to make reasonable demands on the incentives front now when the company’s own sales have come under pressure. And may try to use this knowledge to arrive at a deal with the EV maker that is not too heavily tilted in favour of the American enterprise. 

On April 16, Reuters news agency reported that Tesla is shedding 10 per cent of its staff globally due to declining sales. Global deliveries of Tesla vehicles in the first quarter fell for the first time in nearly four years – a development, which may prompt the company to get more interested in new markets like India, where there is headroom for growth and competition is limited.

Also, last month, the Indian government announced a liberal EV policy to promote India as a manufacturing destination for electric vehicles.

Like any large foreign enterprise, though, Tesla may want to weigh the kind of political support that it may obtain at the federal and state levels before deciding on the site of its proposed India facility. The results of the general elections, therefore, playing a part in influencing the Tesla decision on the matter cannot be completely ruled out.

Incidentally, BYD – the Chinese company that had briefly deposed Tesla to occupy the No.1 spot in global sales of electric cars in the last quarter of 2023 – has already established a strong base in India. Set up in March 2007 in Chennai, BYD India – the Indian subsidiary of BYD – operates two factories, with an investment exceeding US$200 million. The passenger vehicle division of the company has three products in its portfolio – the SEAL, the ATTO 3 and the e6.

States In The Race

Let’s turn to the states in the race for the Tesla plant and look at their individual priorities and compulsions.

Tamil Nadu – the only one among India's top 3 economies where a party in opposition to the BJP holds the reins of power – has already stated its ambition of becoming a US$1 trillion economy by 2030 through a strategy revolving around securing investments in identified sectors that, besides EV, include energy, semiconductors etc. 

In a post on the social media platform X on January 08, 2024, following the conclusion of the Tamil Nadu Global Investors Meet, 2024, the state’s chief minister M K Stalin had said that the event attracted investments of more than 6.64 lakh crore in a clutch of sectors that also included the energy, housing and urban development, and IT and digital services domains, besides traditional industrial sectors.

Despite its professed stance of going all in to attract Tesla, there may, thus, be a limit to the incumbent DMK government's generosity when it comes to extending benefits to the company for setting up a presence in Tamil Nadu. Unless, of course, the Tamil Nadu authorities there feel that it is worth making additional concessions for Tesla.

Similarly, Gujarat – which has set itself a target of becoming a US$500 billion economy by FY2026-27 – may also have to decide how much is worth giving out by way of incentives for a Tesla plant in the state. Like Tamil Nadu, Gujarat, too, has identified several sectors in addition to EV where it wants to concentrate in a significant way to realise its growth target.

Clean energy, for instance, was a major focus at the Vibrant Gujarat Global Summit – 2024 held in January. This was exemplified best through the launch of Mission Green Hydrogen, Gujarat, at the event.

But then again Tesla is not just another large company and thus the possibility always remains of Gujarat being more liberal on the incentives front for this particular entity.

Besides all that has been mentioned before, the other important point that should not be missed in the case of both Tamil Nadu and Gujarat is that Assembly elections in these states are due in 2026 and 2027 respectively. This gives the governments in these states greater flexibility to work out a balanced deal with Tesla.   

Which brings us to the case of Maharashtra. With Assembly elections in the state due later this year, the stance that Maharashtra takes on the incentives front vis-à-vis Tesla would be something to look out for most.

The incumbent government in the state – where the BJP despite having the highest number of seats does not hold the chief minister's post – would not like to be seen as putting a foot wrong regarding Tesla since it may have a hard explaining to do to the local electorate if the state is not chosen by Tesla for its India manufacturing unit and that company decision were to come close to the Assembly elections.

The economic rationale behind Maharashtra wanting Tesla is simple. In conjunction with investment flows in other identified priority sectors, Tesla setting up a base in the state could help the region get close to or even realise the aspiration it has of becoming a US$1 trillion economy by FY2027-28.

Looking Ahead

Hazardous as it may be to guess how events unfold on the Tesla front vis-à-vis India, there is little doubt, though, that no state in the country would like to cede an inch to the other to ensure that Musk’s electric car factory comes up in their regions. 

What would finally tip the scales in favour of a particular state regarding Tesla would be akin to conjecturing since the answer to that would only be known in times to come. 

For the moment, though, the hotting up of the competition between India’s richest states to attract investment from Tesla is all that we can marvel at since it is no less exhilarating as watching a closely fought IPL final.       

(The author is a current affairs commentator. Views expressed are personal)

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