China's loss in India could be Elon Musk's gain

Tesla (TSLA.O) has received a red-carpet welcome in India for its proposal to invest there, while its biggest rival in electric cars, China's BYD (002594.SZ), has been left out in the cold due to increased scrutiny from New Delhi.

The result could be that Tesla could negotiate the terms of its entry into the world's third-largest auto market without having to face the competitive threat from BYD that it does in other emerging markets like Thailand.

Jasmeet Khurana of the World Economic Forum said, "The future of who wins in India will have some bearing on who wins the global electric car race."

Since Musk met with Indian Prime Minister Narendra Modi in New York in June, Tesla has held quick, closed-door discussions with Indian officials about potential factory investments and plans to produce a new, low-cost electric car priced at $24,000.

Those talks have continued over the past week, with Tesla discussing details of its plans to enter India's fast-growing electric car market and Modi personally tracking developments, the sources said.

However, the meetings have been kept tightly under wraps, with officials not posting photos on social media shaking hands with executives, something that is otherwise common after high-profile meetings.

Meanwhile, BYD appears to have taken a back seat. After months of seeking approval for its own $1 billion investment in India, BYD is no longer keen on seeking approval, according to Reuters. In a further setback, BYD is facing an investigation over allegations that it underpaid Indian import duties.

Among other concerns, Indian officials are worried about the national security implications of Chinese-made vehicles and the data they may collect. One official said India was "uneasy about Chinese automakers."

While all investments from China have faced stricter approval requirements in India since the border clashes between the two countries in 2020, this could have a huge impact on India's growing electric vehicle market due to China's dominance in battery materials, battery production and other technologies.

Tesla also has Chinese suppliers to help it cut production costs at its Shanghai factory, and now Tesla wants to bring those suppliers to India - where it appears to have the upper hand in negotiations with New Delhi.

India has told Tesla that it will allow Chinese suppliers into the country if they partner with local companies, as Apple has done. But at the same time, India is hesitant about BYD's $1 billion plan, even though it was also proposed in partnership with a domestic engineering firm.

China's official newspaper, the Global Times, said reports of resistance to BYD's investment plan "will trigger a chain reaction that will undermine the overall confidence of Chinese companies in investing in India".

BYD has yet to comment on its $1 billion India plan, while Musk said after meeting Modi that Tesla plans to make major investments in the country.

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India's growing electric vehicle market

Tesla hopes to sell 20 million vehicles globally by 2030, up from 1.31 million in 2022, but its Shanghai factory expansion faces hurdles.

BYD became the world's largest seller of electric and plug-in hybrid vehicles in 2022, with sales totaling 1.86 million units, the vast majority of which were in China. It trails Tesla in pure EV sales.

"Tesla competes primarily with BYD, and both companies are expanding at a rapid pace globally," said Gaurav Vangaal of Standard & Poor's Global Mobility.

He said, "If they want sales, they have to come to India." India can also serve as an export base as the government encourages companies to manufacture electric cars locally, he added.

Annual production of light-duty electric vehicles in India is expected to rise to 1.4 million units by 2030, close to 19 percent of the projected total of 7.25 million, according to estimates from S&P Global Mobility. In 2022, that number was less than 50,000. The number of electric vehicles produced in India is expected to rise to 1.4 million, close to 19 percent of the projected 7.25 million.

India's emerging EV market is dominated by homegrown Tata Motors (TAMO.NS), whose best-selling Nexon EV sells for as much as $19,000, while Chinese automaker MG Motor's ZS EV starts at $28,000 and BYD's Atto 3 retails for around $41,000 in India.

Toyota Motor (7203.T), Hyundai Motor (005380.KS) and Kia Motors (000270.KS) all sell midsize gasoline SUVs priced around $24,000, which is a definite entry point for Tesla.

Tesla does not currently sell vehicles in India.

"Tesla has become a desirable product in name only," said Sam Fiorani of AutoForecast Solutions. "Coupled with an affordable product tailored for the Indian market, it has the potential to be a big hit there."

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