Tesla is flirting with the idea of entering the Indian market.
CEO Elon Musk said on Twitter last Thursday that he was in talks with India’s government to relieve import penalties until the company can build a factory in the country. This would put the electric car maker one step closer to selling in India, which Musk said he was hoping to do this summer.
India’s tariff structure does make it difficult to sell in the country.
Automakers are required to pay an import duty as much as 100% of the cost of the vehicle, CNBC reported. Companies that want to enter the country as a single-brand retailer have to source 30% of products locally in a certain number of years.
Despite these challenges, India is set to become a critical market, especially for electric automakers.
At its current pace, India will become the third-largest auto market in the world by 2020, according to a May report by the India Brand Equity Foundation, the Indian government’s resource center for economic information.
India’s passenger vehicle segment witnessed the most growth in the 2016 fiscal year, but two-wheelers still secure the most widespread adoption.
What’s particularly relevant for Tesla is that India is looking to promote electric and hybrid vehicle sales through its National Electric Mobility Mission Plan. The initiative aims to have 6 million-7 million electric and hybrid vehicles on the road by 2020 by offering manufacturing and purchasing incentives.
Still, it won’t be easy to gain traction in India.
India still needs to invest heavily in building out a charging infrastructure to support electric vehicles.
Tesla has plans to increase the number of Supercharger stations in North America, Europe, and Asia-Pacific by the end of 2017. But the electric carmaker would have to invest heavily to build out a network in India from scratch.
The large majority of Indian consumers are also very price conscious, which could pose challenges for the luxury car brand. Even Tesla’s Model 3, the company’s first mass-market car priced at $35,000, is still considered a high-end product by most consumers’ standards in the country.