From India To Thailand, What Did Tesla See In Thailand?
May 30,2022 | Chloe Lacour
Tesla's move to the Thai market is inseparable from India's high import tariffs.
In half a month, Tesla completed the transition from shelving the Indian market to finding a new market - Thailand.
Recently, it was reported that Tesla has registered a company in Thailand with a registered capital of 3 million baht, and will sell electric vehicles, energy storage systems, and solar products in the future.
Tesla's move to the Thai market is inseparable from India's high import tariffs. Earlier, Tesla CEO Elon Musk publicly stated that he would like to sell the car to India, but India's import tariffs are too high, one of the highest among major countries. As for building a factory, "Tesla will only consider building a factory in India when imported cars are successful in the Indian market."
According to the current policy in India, the import duty on automobiles is 60%-100%. Almost all Tesla models are priced above the 60% tariff line. Tesla has proposed to the Indian government to cut the import tax on electric vehicles to 40%, but it has not been adopted.
If India's tariffs are not reduced, Tesla will not be able to export smoothly. Although building a local factory for production can solve this problem, local policies are more complicated, and there are religious and language barriers, so Tesla's current priority is export.
Judging from the existing information, Tesla is only selling in Thailand, not setting up a factory. Considering the trend of integration in Southeast Asia, in the long run, selling in Thailand will help Tesla to open up the entire Southeast Asian market. Thailand has an existing automobile industry chain that can also lay the foundation for the construction of factories in the future.
Thailand's auto market is more concentrated than India, and the challenges in the auto industry chain and supply chain are also better than India's.
While entering the Thai market, Tesla is also planning to open a factory in Indonesia. Indonesian Investment Minister Bahlil Lahadalia revealed last week that Tesla had agreed to build a battery and electric vehicle factory in Indonesia, without providing any details. Tesla could even enter Indonesia this year if a final deal is signed soon, he said.
Indian auto market: great potential, high tariffs
Tesla has longed for the Indian market. As early as 2017, Musk tweeted that Tesla wanted to enter the Indian car market.
For Tesla, there are plenty of lures in the Indian auto market. In addition to its large population and high demand for automobiles in India, the local demand for automobiles also needs to be upgraded. The current travel market is dominated by two-wheeled vehicles and three-wheeled vehicles, and there is room for growth of four-wheeled vehicles.
In addition, the low penetration rate of electric vehicles and the considerable luxury car consumer group are also places that Tesla takes a fancy.
"The level of electrification and transportation in the Indian auto market is relatively poor, and there is still a lot of room for development based on the size of the population and the penetration rate of vehicles." Zhang Junyi told the Caijing reporter that the consumption level of the Indian auto market varies greatly. The end consumer groups use tricycles, but the sales of higher-end models, even luxury cars like Mercedes-Benz and BMW, are not small.”
Indian auto consumption shows a trend of two-level differentiation. According to Statista, a third-party statistics agency, 95% of cars in India are priced below $20,000. At the other end of the spectrum, the growth of luxury cars has become more pronounced - even though they account for less than 2% of India's total annual sales of about 3 million vehicles.
JATO Dynamics, an automotive market data provider, found that Mercedes-Benz is the best-selling luxury car brand in India, with a market share of more than 40 percent. In 2021, Mercedes-Benz sales in India increased by more than 40% to 11,242 units, which were basically priced above 10 million rupees (about $131,337).
Ravi Bhatia, president of JATO Dynamics India, said the outperformance of Mercedes-Benz's high-end models reflects the affluence of Indians. "The rich are getting richer, and some of them end up improving their lifestyles."
But India's expensive import tariffs are a big obstacle for Tesla. If you want to buy a Tesla in India, you need to pay the price of two cars.
According to the current policy in India, the import duty on automobiles is 60%-100%. Imported cars priced below 3 million rupees (about $40,000) are subject to a 60 percent duty, with prices above that subject to a 100 percent duty. Almost all Tesla models are priced above the $40,000 tariff line.
Therefore, Tesla has proposed to the Indian government to cut the import tax on electric vehicles to 40%. However, this suggestion was not adopted by the Indian government, and the dispute between the two sides was mainly on whether to build a factory first or sell first.
Musk hopes that the Indian government will cut import taxes first so that Tesla can be sold in India at a competitive price to test the market situation and acceptance. But the Indian government says it wants to make cars locally in India if it wants tax relief.
"Although building a local factory can solve the problem of high tariffs, local policies are more complicated, and there are religious and language barriers, so Tesla's current priority is exporting to India." Zhang Junyi explained.
Tesla had shelved plans to sell electric vehicles in India earlier this year after failing to secure lower import taxes, and reassigned jobs to some of its local teams, media reported.
Is Thailand a good choice?
After the latest setback in its plans to enter India, Tesla is now turning its attention to Thailand.
Judging from the existing information, Tesla's actions in Thailand are still limited to sales. Although the market volume is not as large as India's, Thailand has its own advantages.
The first is market concentration and advantages in the automotive industry. "The Indian market is too fragmented, and although the Thai market will have different levels of cities, it can be regarded as a unified market relatively." Zheng Yun told the Caijing reporter.
Zhang Junyi believes that considering the trend of integration in Southeast Asia, in the long run, selling in Thailand will help Tesla open up the entire Southeast Asian market. In addition, Thailand's existing automobile industry chain is more complete than India's, which can also lay the foundation for building factories in the future.
Thailand is an important automobile producer and exporter in Southeast Asia. The output value of the automobile manufacturing industry accounts for about 10% of the country's total industrial output value.
According to data released by the Federation of Thai Industries, Thailand's total vehicle production in 2021 will be 1.72 million, of which 960,000 will be exported, an increase of 30.35% over 2020. Surapon, a spokesman for the Automobile Industry Branch of the Federation of Thai Industries, said the auto industry is expected to achieve new growth in 2022, with total production reaching 1.8 million units, of which exports are expected to reach 1 million units.
With the rise of new energy vehicles, Thailand has also set its own small goal of industrial transformation - to build the largest electric vehicle manufacturing and export center in Southeast Asia. By 2030, the country's production of zero-emission vehicles will reach 30%-50% of total production, and strive to achieve 100% by 2035, and by 2036, to provide sufficient charging for the planned 1.2 million electric vehicle fleet Facilities and power system support.
Thailand also offers more favorable measures on import tariffs, which Tesla is most concerned about. In April, Thailand introduced a package of incentives aimed at boosting the development of the local electric vehicle industry, according to the Thai Business News Network.
According to the new incentive plan, the import tariff of pure electric vehicles with a price of no more than 2 million baht (about 59,600 US dollars) is reduced by 40%, and the price of electric vehicles between 2 million and 7 million baht (about 208,500 US dollars) is reduced by 40%. Cars and import tariffs will be reduced by 20% from 2022 to 2023. In terms of consumption tax, imported electric vehicles will also be reduced from 8% to 2%. Thailand expects that after the implementation of the above-mentioned tax cuts, the country can add 7,000 electric vehicles within a year.
While Tesla has not officially entered the Thai market, there are already some Tesla vehicles in Thailand. According to foreign media reports, in 2020, the Thai police purchased a batch of Tesla Model 3 for patrolling.
According to data compiled by the electric vehicle website EV Plaza, the Tesla Model 3 will be the second-selling pure electric model in the Thai market in 2021 (222 units). The lack of sales data is related to the size of the electric vehicle market in Thailand. On the other hand, Tesla has not officially entered Thailand as a pure imported vehicle.