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India Just Lost Tesla Electric Car Manufacturing to Shanghai China. What happened?

It looks like Musk just played the long game using India to leverage China into allowing them to become the first wholly foreign carmaker in Shanghai. Find out how he did it.

Oct 25, 2017 | By Jonathan Ho

Tesla electric car manufacturing has been considered as not just a net creator of jobs and employment but also one with the added boon of technology and knowledge transfer. Thus when the Trump administration continued to pivot the United States away from eco-tech and environmentally-friendly products, countries in Asia, specifically China and India saw the potential to incentivise non-fossil fuel products and place emphasis on green, renewable energy projects, attracting the attention of electric vehicle (EV) maker Tesla.

On 14 June 2017, Elon Musk, Founder and CEO of Tesla had himself tweeted that Tesla was working with the Indian government to be granted temporary relief on import restrictions until it can build a factory. The tweet followed persistent rumors about Tesla launching in India, with the Model 3 as its first product in sometime late 2017, or early 2018, adding fuel to the flame (bad pun, sorry), Tesla opened channels for customers in India to make reservations on the new Tesla Model 3. But this wasn’t to be.

Onerous sourcing requirements which legislated that a Tesla Gigafactory would require as much as 30% of parts and components to be locally sourced and after some study, Musk himself concluded that India not only lacked suppliers of EV parts but also the infrastructure to support electric cars, essentially torpedoed the idea of Tesla Electric Car manufacture in India and Musk decided to strike a deal with the Shanghai municipal government to set up the brand’s electric car factory there instead.

India Lost Tesla Electric Car Manufacturing to Shanghai China. What happened?

If one considers that three out of the world’s six largest auto markets are Asian countries: China, India and Japan. It is quite likely that Musk was leveraging India all along. Before his 14 June tweet, he had already posted on social media on 21 May 2017 that he had already learnt that India didn’t have industries which could supply the necessary components. Prior to that, Chinese giant Tencent had already made investments in Musk’s company, hinting to decisive strategic and financial implications to come, in essence, Musk’s pivot to China, while likely the result of push and pull factors, telegraphs somewhat that he might have been setting up a long play to make Tesla the first wholly foreign owned car manufacturing facility in the Shanghai’s free-trade zone. Before Tesla, foreign auto makers could only built cars in China through joint ventures with local manufacturers, a deal which forced many foreign carmakers to split profits.

Musk’s Tesla Gigafactory deal with China has already changed the state of play. That said, this win bodes well for both Musk and China, already the fastest growing developer of green energy sources and renewable tech. This deal will boost the already fast-growing segment of electric vehicles in China and will continue to haunt India for years to come.


Business of luxury: Bet on Renewable Energy and Tesla stocks

Shortly after Trump announced US withdrawal from the Paris climate accord, Indian Prime Minister Narendra Modi was cosying up to Macron with a pledge to move India three years ahead of schedule to achieve its “Intended Nationally Determined Contribution” to the Paris climate agreement: Instead of the original objective of 40% renewables by 2030, Modi pledged for India to hit their those targets by 2027 and it looks to be a reality – the country is already on track for 175 GW wind (from current 57 GW) expected by 2022 and 75 GW solar PV by 2027. Meanwhile, India’s installed capacity for solar energy has tripled in the last three years to its current level of 12GW. This turn to renewable energy is driven in a large part by declining coal prices where India once derived 60% of its 330 GW energy production from.

Meanwhile, Tesla, held in the last 12 months as one of the most heavily shorted stocks is on the verge of a breakout as investors look at the new agreement to establish electric vehicle manufacture in China. The People’s Republic is home to rapidly growing population of wealthy car shoppers which have already bought more than $1 billion in Tesla Model S and Model X vehicles in 2016. According to The Street, Tesla has 8.6% of China’s booming electric car market on a unit basis, making Tesla fourth overall and the only non-Chinese firm to place in the top ten.

According to 2016 statistics, China is the world’s largest auto market with growth rates higher than its closest rival, the United States. China was up 23.6 million from 16.3 million in 2013 while the US had grown to 17.4 million from 15.5 million in 2013. Europe currently accounts for 15.1 million. Followed by Japan with 4.1 million and India with 2.9 million.


Asia also is the world’s largest market for EVs forming 45% of the market in 2016, up from 35%. With this deal, China looks set not only to lead in car sales but also dominate in the manufacture of EVs. Tencent, a major player in China with market cap of US$275 billion and a consumer base of 889 million across communications, shopping, gaming and payments not only has the cash but strong political connections to push Tesla to greater heights. Tencent currently owns 5% of Tesla, tellingly, Tencent been a research leader in AI for autonomous cars.

Based on these factors, Tesla might be a little pricey now at US$380 per share now but signs point to the stock growing a heck of a lot more expensive in the months to come.

LUXUO is not responsible for financial investments taken as a result of the news presented here. Caveat Emptor.




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