Tesla is set to land in India amid a capacity glut, rising competition and anti-Musk protests in key markets.
28 Mar 2025 | 1497 Views | By Prerna Lidhoo
Amid beauty serums, trendy Stanley cups, and holiday shopping deals, something unexpected shot up on Amazon’s bestseller list on November 5—Donald Trump’s electoral victory day. The so-called ‘regret stickers’ bearing slogans like “Bought it before we knew how awful he is” and “Stuck with Tesla, not stuck on Elon” became ...
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Amid beauty serums, trendy Stanley cups, and holiday shopping deals, something unexpected shot up on Amazon’s bestseller list on November 5—Donald Trump’s electoral victory day. The so-called ‘regret stickers’ bearing slogans like “Bought it before we knew how awful he is” and “Stuck with Tesla, not stuck on Elon” became a quiet but powerful form of protest among Tesla owners in the United States.
The backlash against Tesla CEO Elon Musk had been simmering for months due to his increasingly right-wing politics. However, that was not Musk’s only challenge. It was hemmed in by increasing competition from players like BYD and Xiaomi in China, and consumers putting off purchases due to the upcoming launch of the new Model Y. Little wonder then that in the first two months of the year, sales plunged 71% in Germany and 44% in France, the EU’s largest EV markets.
By March, the company’s share price had tumbled over 40% from its December peak. For the first time since 2011, Tesla is facing sales decline after years of explosive growth that cemented its status as the world’s most valuable automaker. However, as Tesla faces headwinds in many of its traditional markets, a new avenue seems to be opening in front of the company – India.
Ahead of its official launch in the country, the company has reportedly locked-in a Mumbai showroom on a five-year lease, plans for a second showroom in Delhi are already in motion and hiring is underway for nearly two dozen roles across customer support, sales operations, and product development. But the bigger question is – can Tesla – with models starting at Rs 45 lakh – truly find a footing in India – a notoriously price sensitive, tariffridden market with lots of tough, local competitors? Or will it end up as just another ‘shiny little thing’ in a market where most cars are priced between Rs 9-11 lakh?
Niche Market
The premium car market in India—vehicles priced above Rs 40 lakh—has remained at around 1% of the total car sales for a long time, largely due to high import tariffs and taxes. Premium carmakers sell approximately 80,000 to 85,000 units annually in a market where the average selling price (ASP) is around $11,000 (Rs 9.5 lakh), significantly below the global average of $40,000. Expanding this market remains challenging, as high costs, limited local manufacturing, and price-sensitive consumers continue to constrain growth.
Moreover, the high-end car segment has seen its slowest growth from January to March 2025. According to Santosh Iyer, Managing Director and CEO of Mercedes- Benz India, the Indian luxury car market may experience a period of flat growth or a slight dip in the coming quarters due to weak consumer sentiment. “Currently, sentiments are muted in capital markets and some other sectors due to various geopolitical uncertainties as well.
Maybe for one or two quarters, you may see a flat or even a slight decrease, and then it should return to a better growth rate. On a full-year basis, we still believe it should be either flat or slightly better than last year,” he said. Regarding the potential entry of Tesla, Iyer stated that the introduction of new players into the Indian car market will grow the space.
“New players always help to grow the market, so I think it’s always welcome to be there,” he said. However, he pointed out that Mercedes-Benz operates primarily in the premium and luxury segments. "Our stake in the entry-luxury segment is only 10%. Ninety percent of cars sold in India fall in the top-end luxury, ultra-luxury, or core luxury segment,” he noted.
Until last year, India imposed a steep 110% import duty on all cars. However, the government has since lowered the duty to 15% for fully assembled EVs priced above $35,000, but only for up to 8,000 units annually. In return, manufacturers must commit to investing at least $500 million and setting up local production within three years. Experts say that a further decrease in duties is expected soon, responding to pressure from the US. Even excluding tariffs, Tesla’s most affordable model, the Model 3, would cost around $40,000 (approximately Rs 33 lakh)—far beyond the price range of India’s mass-market cars.
However, Musk may surprise the market by finally launching the long-awaited $25,000 compact Tesla, often referred to as the Model 2 or Model Q. The vehicle, expected to be a Completely Built Unit (CBU), could be a game-changer in making Tesla more accessible to a broader audience. According to Puneet Gupta, Director, India & ASEAN Automotive Market, S&P Global Mobility, Tesla’s positioning is unique—it straddles the line between mass-market and premium segments.
While globally it may not bemmdia, it will likely be perceived as premium. “Tesla has a strong opportunity in India, especially if it introduces a model in the country’s sweet-spot price category. While this may not happen in the first couple of years, the long-term potential is clear. Additionally, Tesla stands to benefit from the absence of major Chinese competitors in the Indian market, unlike in other regions where it faces intense rivalry. With the Indian government actively promoting greener mobility solutions, Tesla is well-positioned to capitalise on the country's growing EV market,” he said.
Felipe Muñoz, an Italy-based Global Automotive Analyst at JATO Dynamics, notes that Tesla has to explore new markets such as India, given that European demand for electric vehicles has stagnated, while enthusiasm in the U.S. remains lukewarm. Similarly, in China, the company faces increasing competition. Despite this, the company's 2024 performance was relatively solid given these challenges.
“However, Tesla must now identify new avenues for growth, as its operations heavily rely on three key markets: the U.S., China, and Europe. With the U.S. and Europe reaching market saturation and China becoming increasingly competitive, expansion into new regions or countries is crucial for sustaining growth,” he noted.
The India Challenge
In India, the critical factor for the company will be how it navigates its first two years. Numerous global players like Ford, Volkswagen, GM, etc have struggled in India, giving the market a formidable reputation among European and American brands. That said, Tesla’s entry will undoubtedly expand the EV market, S&P’s Gupta says. Electric car sales in India grew by 20% year-over-year in 2024, but the market remains small—EVs accounted for just 2.5% of the 4.3 million cars sold last year. Despite this, India's EV sector is valued at $54.41 billion and is projected to nearly double to $111 billion by 2029.
“The key question is whether their presence will go beyond just importing and selling a limited number of vehicles. The real impact will come if Tesla makes substantial local investments. If Tesla establishes a robust local supply chain, it could set a new benchmark,” he said. The bigger challenge will be execution. “They shouldn’t expect a red-carpet welcome, navigating the complexities of India’s regulatory and operational landscape will be crucial. Even if they secure approvals from the central government and acquire land without major hurdles, the real test begins once they start operations. That’s where the real challenges will emerge,” he said.
On the consumer side, there is significant anticipation and hype. However, the key will be a well-thought-out India strategy. Simply importing and selling a limited number of vehicles won’t work in the long run. A manufacturer that enters the market without a strong local commitment is unlikely to succeed, experts say. They need to develop an India-centric product, ideally priced around Rs 25 lakh, but that’s a long-term play— something that could take three to four years.
They believe that Tesla should spend the first two years building strong local partnerships, understanding regulatory frameworks, and adapting to India's unique business environment, including its taxation structures and operational protocols. According to Gupta, there’s no doubt that a period of market saturation is inevitable for existing premium players.
“A portion of the market’s growth will inevitably be absorbed by Tesla, impacting established brands. However, Tesla’s presence could also stimulate overall demand in the long run. Rather than just taking away market share, they may expand the EV segment itself, potentially balancing out the impact. As a result, premium brands might respond with a more aggressive strategy across their portfolios, possibly even drawing inspiration from Tesla’s success,” he adds.
For Tesla to succeed, it has to be a long-term, volumedriven play. Several global players have struggled to scale in India, and without local production and a well-planned strategy, Tesla risks facing similar challenges.
Going Local
Although the first model will be imported as a completely built unit (CBU), the company is exploring a contract manufacturing model instead of establishing a greenfield plant in its first year. Tesla has initiated discussions with a Japanese automaker and an Indian car manufacturer to assess the feasibility of utilising their available production capacity. According to Pedro Pacheco, Vice President of Research, Automotive and Smart Mobility at Gartner, what was previously referred to as Tesla’s low-cost or entry-level model is now expected to be a smaller version of the Model Y.
“It is likely to be about 20% cheaper than current models, but its production will follow a more conventional approach. It will likely be manufactured on the same assembly lines as the Model Y or Model 3, making it a more practical evolution rather than a radical redesign. This strategy mirrors what premium German automakers did two decades ago—starting at the high end and gradually introducing smaller, more affordable versions of their existing models,” he adds.
“Tesla appears to be following a similar path.” By cutting production costs by 20% and targeting a segment below the Model Y, Tesla can enter a highervolume market where it currently has no presence. This move could drive substantial growth for the company, he says.
“But I don't think Tesla is going to do massive changes to their strategy for entering the India market in comparison to what they've done in other countries. Yes, you have some small changes here and there, but it's not massive. Because in the end, it's always direct-to-consumer, it's a fully-owned retailer network, and a supercharger network—they build and own their own charging network,” he said.
He adds that the biggest challenge for Tesla in India is entering as a new player, which always makes establishing a foothold more difficult. “Starting from scratch comes with inherent hurdles, from building a supply chain to navigating regulatory complexities. Moreover, Tesla doesn’t compete in the economy segment,” he said. To make a real impact, says Jato’s Munoz, Tesla needs to manufacture in India and cater to what Indian consumers actually buy—primarily small SUVs.
“Currently, the smallest vehicle in Tesla’s lineup is the Model 3, which is 4.7 metres long. As a sedan, it doesn’t align with the preferences or affordability of most Indian buyers. Looking at successful strategies of non-Indian automakers, those that have gained traction in the market have done so by adapting their products to local needs. Tesla must follow suit by developing not just a more affordable vehicle, but a smaller one as well,” he said.
This presents a challenge because Tesla’s success so far has been built around a limited lineup of models that share significant similarities—such as the Model 3 and Model Y. Adapting to a market that demands compact vehicles will require a fundamental shift in Tesla’s approach. India is a crucial market for Tesla, but at the same time, Tesla is equally important for India. The country needs to integrate into the global electrification movement effectively, and Tesla could play a key role in that transformation.
“India also has the potential to become Tesla’s primary hub for emerging markets. Currently, Tesla has little to no significant presence in Latin America or Southeast Asia. Establishing operations in India would provide access to the world’s third-largest car market, which still has immense growth potential. Additionally, by setting up a strong base in India, Tesla could tap into other emerging economies that demand more affordable, regionally adapted EVs,” Munoz said.
He says that Tesla developing a model exclusively for India wouldn’t be practical and goes against its established approach to efficiency and profitability. “Instead, a collaboration would be a more strategic move, allowing Tesla to save on development costs while also providing a direct pathway into the Indian market,” he adds.
Changing Priorities
Meanwhile, larger trends taking place at the global level are also likely to impact Tesla’s priorities in India. The company appears to be undergoing a strategic shift, placing greater emphasis on AI-driven initiatives rather than its vehicle manufacturing business. “It’s becoming clear that Tesla has shifted its focus,” says Pacheco. “Since last year, the company has placed a much greater emphasis on AI, particularly in areas like autonomous driving, the rollout of the RoboTaxi, and the Optimus robots. It seems Tesla is now more focused on maximising the business potential of AI rather than prioritising conventional vehicle launches.”
One example of this shift is Tesla’s approach to its rumored entry-level model. “Initially, there was a lot of speculation that Tesla wanted to create something truly innovative,” Pacheco explains. “But in the end, it looks like they’re opting for a scaled-down Model Y—a more practical, rather than revolutionary, approach. This clearly indicates a change in direction.” There’s even speculation that Tesla might eventually evolve into more of an AI-driven company than a traditional automaker.
“That doesn’t mean Tesla will stop producing cars,” Pacheco clarifies. “But over time, we could see a shift where the company’s revenue and profits rely less on vehicle sales and more on AI-driven business models—whether that’s selling Optimus robots or monetizing autonomous mobility solutions.” Of course, there’s no definitive proof that is where the company is headed, Pacheco adds, but the signs suggest a broader transition may be underway.
Beyond AI, Elon Musk’s growing political involvement is another wildcard. He also acknowledges the growing discussions around how Elon Musk’s political choices impact Tesla. “There’s been a lot of debate about how Musk’s views influence not just potential buyers and Tesla owners, but also investors,” he adds. “It’s a factor that can’t be ignored. With multiple factors at play, the company’s long-term direction is still uncertain.
“It's difficult to quantify the exact impact (of his political leanings) and I don’t want to overstate or understate its significance. But it seems to be a factor,” he said. US financial services firm Wedbush Securities recently pointed out that Musk's focus has increasingly shifted towards projects like the Robotaxi, SpaceX, and his involvement with DOGE (Department of Government Efficiency) initiatives tied to the U.S. government.
“Musk’s DOGE-related actions and deepening ties with Trump could push some consumers away from the Tesla brand,” it said in a note. Even in the Indian market, experts suggest, Musk's real opportunity lies not with Tesla, but with his satellite internet venture, Starlink.
The company has finally announced its long-awaited entry into the Indian market through partnerships with telecom giants Airtel and Jio. As Musk balances politics, AI ambitions, and business expansion, the future of Tesla remains uncertain. Whether he doubles down on his political engagement or shifts his attention back to Tesla will be critical in shaping the company’s next chapter.