Tesla Syndrome: Will Elon Musk's Entry In Indian Market Create Havoc For Tata Motors, Maruti, Hyundai?

The entry of US' largest electric car Tesla, backed by richest man, Elon Musk, has created havoc for auto stocks. Additionally, Trump's tariff threats added to woes. Since the last meeting of PM Modi with Musk, auto giants such as Tata Motors, M&M, and Maruti Suzuki dropped by 2% to 11% on BSE in 10 days. On Monday, February 24, Tata Group's auto flagship Tata Motors which currently holds dominance in the EV sector of India, also touched a new 1-year low. The performance comes despite global brokerage CLSA stating that Tesla's entry will not significantly impact the Indian auto biggies.

Following the buzz of Tesla's entry in India, brokerage CLSA said that the EV carmaker's cheapest car could range between Rs 35 lakh to Rs 40 lakh in India. The price estimation includes road tax, insurance and other costs. Currently, Model 3 is sold for $35K in the USA. In India, the Rs 35 lakh to Rs 40 lakh would read as $45K, meaning expensive by $10K from the US price.

The government is mulling to declare a new electric vehicle (EV) policy, which will lower import duties to strengthen global investment in India. According to the framework that was declared in March last year, the new policy would likely result in import duty to 15% from a massive 110%.

Also, under the new EV policy in India, the customs duty of 15% (as applicable to CKD units) would be applicable for a period of 5 years, while vehicles of CIF value of USD 35,000 or above will be permissible. Additionally, the total number of EVs allowed for import would be determined by the total duty foregone or investment made, whichever is lower, subject to a maximum of Rs 6,484 crore (equal to incentive under the PLI scheme). Furthermore, the policy suggested not more than 8,000 EVs per year would be permissible for import under this scheme. The carryover of unutilized annual import limits would be permitted.

In CLSA's view, Tesla has positioned itself with Model 3 at an on-road price that is 20-50% higher than models like Mahindra XEV 9e, e-Creta, e-Vitara, etc, and hence it would not significantly impact domestic EV models.

According to CLSA, factors such as spacious interior, features, aesthetics, better resale value visibility and right pricing are key for decision-making. To penetrate its presence on Indian roads, CLSA believes it is vital for Tesla to have its own manufacturing unit in the country, to scale its operations and price the cars ranging from Rs 35 lakh to Rs 40 lakh.

Even if Tesla launches a sub-Rs 25 lakh car in India, brokerage CLSA believes it will still not have a major impact on players like Maruti Suzuki, Hyundai or Tata Motors. Another key reason why CLSA believes Tesla's impact on Indian autos to be minimal is that it sees Tesla to comprise its features and specifications meaningfully in the cars meant for Indian roads compared to its traditional ones.

During the meeting that was held on February 13, 2025, PM Modi and Musk discussed strengthening collaboration between Indian and US entities in innovation, space exploration, artificial intelligence, and sustainable development. Their discussion also touched on opportunities to deepen cooperation in emerging technologies, entrepreneurship and good governance, as per the PMO statement.

Soon after the meeting, Tesla launched its job window in India for various roles, specifically in the Mumbai store. But the Indian auto stocks have witnessed panicked sentiments from investors, and Tata Motors discounting its EV cars further escalated the frenzy.

Mahindra & Mahindra shares took the worst hit, declining over 11.5% on BSE from February 13 to February 24th intraday low of Rs 2634 apiece. Meanwhile, Tata Motors hit a new 52-week low on Monday to Rs 666 apiece on BSE, and its stock has dipped by 2.6%. Additionally, Maruti Suzuki touched an intraday low of Rs 12,208 apiece and its decline is about 3.6% in 10 days.