Tesla (TSLA -1.36%) is going to India. The Silicon Valley-based automaker plans to begin offering its Model 3 sedan to Indian customers early next year, according to India's transport minister, Nitin Gadkari.
India's auto market has huge potential, but it's also one of the most price-sensitive in the world. How will Indian consumers -- accustomed to inexpensive small cars -- respond to Tesla's powerful-but-pricey vehicles? Can the company duplicate its China success here?
What we know about Tesla's plans
We've known for a while that Tesla has been planning to enter the Indian market. CEO Elon Musk seemed to confirm those plans in a tweet in October.
Next year for sure— Elon Musk (@elonmusk) October 2, 2020
But if anyone outside Tesla would know the full story, it's Gadkari. The transport minister told the national daily newspaper Indian Express that Tesla plans to "start operations" in the country in early 2021, beginning with sales of imported Model 3s. The company will consider manufacturing in India, Gadkari said, but wants to wait to see how how the market responds before making further plans.
Separately, India's Economic Times reported that deliveries of imported Model 3s aren't expected to start until the second half of 2021, though Tesla will likely begin taking orders soon, possibly in January.
That all sounds good, but there's one sobering note: Both newspapers reported that the India-market Model 3 is likely to start at about 55 lakh rupees. A lakh is 100,000 rupees, so that's 5.5 million rupees, or just under $75,000 at current exchange rates.
In India, 55 lakh is a lot of money for a car. Like, a whole lot.
India isn't like other markets
India's new-vehicle market isn't like China's or Europe's or really anywhere else's. Maruti Suzuki, a local subsidiary of Japan's Suzuki (SZKMF 6.23%), has captured almost 50% of the market with locally made versions of Suzuki's small, affordable cars. Maruti's bestseller is the Swift, a small hatchback with a starting price of 5.19 lakh -- about $7,000. Most Maruti Swifts sell for a bit more, but not a lot more.
The top-selling non-Maruti in India last month was Hyundai's Creta, a small five-passenger SUV that starts at 9.82 lakh, or roughly $13,400. Ford Motor Company's locally made EcoSport, which starts at $19,995 in the U.S., starts (in simpler trim) at just 8.19 lakh in India, about $11,140.
Get the idea? Indians buy quite a few new cars, but most are bought at prices that are a fraction of Tesla's and a fraction of what the global automakers charge for similar models elsewhere. Needless to say, global luxury brands like BMW and Audi, which compete with Tesla elsewhere, barely have a presence in India -- and BMW is mostly there to sell motorcycles, not its luxury cars and SUVs.
Tesla's success in China doesn't tell us much
The Model 3 has sold well in China since the company's Shanghai factory opened late last year. But Tesla has had to cut prices to sustain those sales: Its locally made Model 3s now start at about 250,000 yuan, or $38,000, with longer-range versions starting at about 310,000 yuan or a bit over $47,000.
In China, those are competitive prices. But in India, they'd still be too much for most consumers.
I think that Tesla will find some customers in India, which does have some wealthy urban entrepreneurs and technology workers who aren't so price-sensitive. But unless the company has a very low-cost model up its sleeve, its monthly sales numbers are likely to be quite small -- closer to hundreds than to tens of thousands. Auto investors should set their expectations accordingly.