Investors in Emerging Markets Set Their Sights on Tesla’s Potential

This has been a challenging year so far for the electric vehicle (EV) giant Tesla TSLA. A spate of negative headlines, from dwindling sales at home to fierce Chinese competition abroad, accompanied by steep price cuts and workforce reduction, trade war tensions between the U.S. and China, and supply chain disruptions, have paved a path ahead fraught with obstacles.

These developments have sparked significant concerns among Tesla investors and have compelled CEO Elon Musk to cast his gaze beyond the horizon in search of avenues to bolster Tesla’s demand while ensuring competitive production costs. In pursuit of this goal, Musk has sharpened his focus on setting up the next gigafactory in Asia, hoping to replicate the success of Tesla’s Shanghai gigafactory.

The Next Tesla Factory

The search has taken Tesla to Southeast Asia, a region that has emerged as one of the hottest EV markets in recent years. The market can offer Tesla a large customer base at a time when demand is slowing in the U.S. Tesla boss Elon Musk was recently reported to be in talks with Thailand to set up the company’s next manufacturing facility.

Notably, Musk has also been in talks with the Indian government to set up a potentially US$3 billion Tesla car plant in the South Asian nation.

For years, India seemed to be the top contender for the U.S. EV maker’s next manufacturing unit. Billionaire entrepreneur Musk has repeatedly expressed his intent for Tesla’s India foray with utterances like “soon” or “next year”. He said that in 2017, repeated it in 2018, then again in 2019, in 2022 and more recently in 2023, on the sidelines of his meeting with Indian Prime Minister Narendra Modi in New York.

However, Musk’s recent focus on Thailand puts a question mark on his intentions for Tesla’s India venture. Notably, Musk has acknowledged conditions laid by India were too onerous, demanding they be eased or waived entirely.

India, on its part, has made efforts to sway Musk’s mind with incentives, including lower import taxes on EVs, something his team had been lobbying for in New Delhi.

It’s Now or Never for Tesla in India

This may be Tesla’s last chance to compete in India, contends Vivek Wadhwa, a Silicon Valley-based entrepreneur and academic and former Distinguished Fellow at Harvard Law School.

“Within two years, China and India will have cheaper and better EVs than Tesla has, and these will be suited to Asian roads and markets rather than the U.S. and European ones that Tesla’s are designed for,” he says.

Moreover, the Tesla technology is now more than a decade old and has not had any significant upgrades, he adds.

With Tesla projecting slower growth in 2024, caused by shrinking global demand, the doors of opportunity in Asia may be closing for Tesla, contends Wadhwa, author of The Driver in the Driverless Car: How Our Technology Choices Will Create the Future.

India vs. Thailand Economies

As the world’s largest population (over 1.4 billion), the world’s fifth-largest economy, and with an annual GDP rate of nearly 8%, India’s potential is undeniable. It is also the world’s 4th largest automaker, after China, the U.S., and Japan. Moreover, the Indian government aims for EVs to account for 30% of passenger car sales by 2030.

The South Asian nation’s recent economic success, solid momentum and promising prospects have made the country ever more influential both regionally and internationally. Yet, India has a history of red tape, corruption and a business environment riddled with onerous restrictions on foreign companies looking to do business in India.

As a result, a slew of big names including U.S. automaker Ford, Bank of Scotland, bikemaker Harley Davidson, and Citibank have decided to pull the plug on their operations in India or significantly curtailed their presence in recent years.

This contrasts with Thailand, which is regarded as reliable, organized and business-friendly. The country has rolled out a slew of tax benefits and import duty cuts in a bid to establish itself as a car manufacturing hub to Asian and Pacific markets. The Southeast Asian nation, known as the “Detroit of Asia,” is the region’s largest car producer and exporter, and the world’s 10th largest automaker. Many of the companies — including Japanese auto giants, Honda and Toyota; the world’s largest food and beverage company, Swiss-based Nestlé SA; and the largest Chinese telecom firm, Huawei Technologies; have already embraced Thailand as their regional headquarters, underscoring both its existing strengths and future prospects.

China-like Growth without Chinese Control

Tesla needs to expand production in Asia in a cost-effective manner, which Thailand can provide better than India, says Craig Irwin, senior research analyst at Roth Capital
“Tesla needs low costs similar to China in order to compete,” he says, adding that Thailand offers the U.S. EV pioneer access to the same supply chain that supports its Shanghai facility, but without subjecting it to Beijing regulations.

An Indian facility would not serve as a global export hub like the Shanghai facility, as it would not have the same level of integration with the existing supply chain infrastructure, he contends. “An Indian facility would need a new supply chain and that will start at a lot higher cost than what they have today in China,” notes Irwin.

Politically, too, Indian policymakers are grappling with the intricate challenge of reconciling external and internal interests while attracting foreign companies to participate in its growth story.

End of the Road?

Wadhwa says it may already be too late for Tesla to enter India. Three years ago, Tesla would have owned the Indian EV market, but now it should brace for stiff competition from local EVs produced by local automakers such as Mahindra, Tata, and Maruti, as well as a clutch of Chinese EV models flooding the market, he adds.

With Southeast Asia emerging as one of the fastest-growing EV markets in recent years, it becomes apparent that “Elon made a big mistake by putting all of his chips on China,” Wadhwa says, stressing that he had warned Musk that China “will rob him blind and then eat his lunch and that is exactly what is happening.”

The grand question looms: Can India’s vast market potential and robust automotive manufacturing infrastructure tip the balance in its favour? Or will Thailand seize the opportunity to swiftly capitalize on the burgeoning EV demand in Asia, and add Tesla to its roster of carmakers that are part of its production hub?

The race is on, and the stakes have never been higher for Tesla and its stakeholders.

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