Tesla and the Indian Market: Tougher Than Expected

Getting electric vehicle maker Tesla, Inc. (TSLA) into the Indian market should seem like a natural fit. After all, it’s the second largest population base behind China, and in general also one of the biggest markets around. So why isn’t Tesla selling electric cars on the Indian market? CEO Elon Musk recently elaborated why, and the answer may pull some bullish sentiment out of the market.

I’m still sitting neutral on Tesla, because it’s got a lot of plates spinning right now. Those that fall may represent serious problems for the company and its shareholders going forward.

Never a Dull Moment

Tesla’s year in share prices has been fairly flat, though recent days have seen much more volatility. The company spent most of the first six weeks of last year up around $850 per share. A slide over the next four weeks, meanwhile, brought shares down to their lows for 2021, bottoming around $563. Tesla shares briefly recovered from that drop before losing ground once more, going to around $572 on May 12. That started a long, slow climb upward.

By the end of September, the company looked to plateau once more at around $791. That was where the next explosive leg up started, propelling Tesla from around $800 to over $1,200 per share in just over two weeks. Erratic fluctuations followed, some seeing Tesla dip below $900 per share, but now the company has recovered to its full four-figured glory.

So why is Tesla not operating in the Indian market? It would seem like a natural fit, but according to CEO Elon Musk, it’s not so easy to set up as some might hope. Musk cites “challenges with the government” for keeping Tesla out of the Indian market. He has been trying to get Tesla in the Indian market since 2019, reports noted, and both sides are still well apart. The biggest sticking points seem to be about a factory in the country as well as import duties in India. The government wanted Tesla to share its manufacturing plans, as well as bump up local procurement to give the economy a shot in the arm. Meanwhile, Musk was pushing for lower taxes.

Wall Street’s Take

Turning to Wall Street, Tesla has a Moderate Buy consensus rating. That’s based on 16 Buys, nine Holds, and six Sells assigned in the past three months. The average Tesla price target of $1,049 implies 5.32% downside potential.

Analyst price targets range from a low of $295 per share to a high of $1,580 per share.

Tesla Needs the Indian Market, Badly

I’ve pulled back on my appraisal of Tesla in the last several weeks. While it’s still the biggest fish in the pond when it comes to electric vehicles, it’s also an increasingly crowded pond. That first-mover advantage only lasts so long, especially when established auto makers are getting in on the action. Not to mention a growing crop of promising Chinese electric vehicle makers.

Tesla has done a solid job of making its presence known in the North American and European markets. It’s faced troubles in east Asia, but it’s established something of a presence there too. Even if its Chinese dealings have occasionally proven controversial. It’s already taking fire for opening a showroom in the controversial Xinjiang region.

The Indian market would likely be a plum for Tesla. There isn’t much of an electric vehicle presence there yet, and the country is positively ripe for one. After all, India wants to be net-carbon-zero by 2070. Prime Minister Narendra Modi made as much clear back last November during the COP26 climate change summit. Naturally, not much actual movement on that front has been made—it was just three months ago—but the sentiment is there. A Tesla presence in the country would certainly help, if they can just come to some agreements.

With Tesla’s dividend history still looking bleak, a new source of incoming cash could give the company the life it needs to take on all its newly minted competitors. Better yet, if Tesla can once again get first-mover advantage in a comparatively new market that’s eager for emissions reduction, that could give it a larger market advantage for the next few years. Such an edge would fuel research and development, and also add much-needed entropy into the market’s decisions. Once customers buy a product and have a positive experience, they don’t tend to vary unless something major happens in that customer experience.

Concluding Views

All of Tesla’s problems are still there, although the company remains the big fish in the pond. However, with so many others entering the market, Tesla will be hard-pressed to fend off all that competition. At least, without going for the nuclear option that is price cuts. If Tesla is reduced to competing on price, then the whole shooting match is a lot closer than anyone had previously thought.

If Tesla can become the dominant electric vehicle vendor in highly-populous India, it may well cement its position as the market leader for years to come. For a company whose biggest problem right now is growing competition, that could be a winner.

I’m remaining neutral on Tesla for now, though. It’s trading much closer to the top of its range than the bottom. Further, until it can secure the Indian market, it’s still a clear target for all those new competitors eager for a piece of Tesla’s pie.

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