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“Some people don’t like change, but you need to embrace change if the alternative is a disaster.”

Elon Musk is a man who keeps his word. By succeeding in putting electric cars on the radar for many buyers who once would never have considered owning them, Musk-led Tesla Inc has managed to not only demonstrate the success of a new, millennial business model, but also helped in the transition to a greener automobile industry. Tesla Inc marked 2020 as the year in which the U.S. auto industry decided to go electric. Tesla’s market capitalization surged above $600 billion, making the once-wobbly startup worth more than the five top-selling global vehicle making groups combined.

Founded in 2003 by engineers Martin Eberhard and Marc Tarpenning in San Carlos, California, Tesla Inc. was initially named Tesla Motors, after the scientist Nikola Tesla. In October 2008, Elon Musk (who’s currently the face of the company) took over as its CEO and instantly fired 25% of the company’s staff. Musk’s master plan was to build a luxury electric sports car, earn a massive amount of profit from it, and use this revenue to create a more affordable luxury sedan. Once the luxury sedan would take off, Tesla was to use the proceeds from its sales to produce, market and sell a truly affordable electric car.

However, in the implementation of this master plan, Tesla faced a series of challenges. In the year 2009, despite launching the Roadster, Tesla faced significant financial problems. The Cash-in-Hand of the company was inadequate to deliver the cars it had already sold. Furthermore, the company faced problems with its supply chain. Due to lack of capital investment, it had to import parts from around the world, instead of building and assembling its cars at one place.

In order to become a major player in the mass market segment and cut costs across the board, Tesla poured huge amounts of money into automation. However, in 2017, when the company began producing Model 3, they could barely meet their target of producing 5,000 units each week. Owing to the problems in the assembly line, battery manufacturing and robots, the Automation Model became inoperable. Musk defined this scenario as the ‘Production Hell’ and announced that ‘Excessive Automation’ was a mistake. Tesla halted the production process for a week in order to make some repairs in their model. During this time, many investors were of the opinion that Tesla was on the verge of Bankruptcy, pointing out the fact that it had loads of debt and was running out of cash. Thus, they began to short sell the stock.

However, to everyone’s surprise the company’s valuation kept skyrocketing. Between March 2016 (when the company started accepting orders for the Model 3) and July 2017 (when the company started delivering the Model 3s), Tesla’s market value leaped from $30 billion to $60 billion. The Model 3 became a huge success and by 2018, Tesla had sold 146,000 units- a spectacular number, bringing trouble to the short sellers. Many short-sellers were looking to close the bet, trying to buy back the share at a higher price, thereby inflating demand and pushing the price even further. This made holding on to their bet even more difficult.

2019 proved to be a breakout year for Tesla. They delivered 50% more electric vehicles than the previous year and debuted two new vehicles including the Cybertruck. Tesla’s success continued in 2020 too. Even the coronavirus couldn’t affect their sales as they managed to sell 91,000 electric vehicles— reduced only by 5% than the same period last year, despite factory shutdowns. In the same year, by reporting its fourth quarterly profit in a row Electric car maker Tesla proved that it has shrugged off the economic upheaval caused by the pandemic.

In 2020, the year of COVID 19, Tesla’s stock price rose by 720%. By Jan 7, 2021, Elon Musk had become the World’s richest man, with a net worth of over $190 billion. The bullish share price of Tesla represents a promising future for the demand of electric cars in the world for institutional investors. It is a popular opinion that the victory of Joe Biden could be an optimistic situation for EV investors because he supports a more environment-friendly platform, which could boost EV credits as well as incentives for buying EV. Billionaire investor Chamath Palihapitiya commented, “Tesla is still undervalued as people continue to misunderstand its fundamentally disruptive technology and the stock has the capacity to triple in its value from the current levels.

On the other hand, some people believe that Tesla’s share prices are overvalued, and Musk himself agreed with this, warning his employees to not be swept off of their feet by bullish sentiments, and even discussing the possibility of stock getting crushed immediately like a soufflé under a sledgehammer! Adding to this, Musk accepted Tesla’s problem of liquidity and called the company cash-poor, which acts as a risk factor for its investors. It has also been pointed out that Tesla’s current product plans do not mean an electric vehicle for every consumer who wants one, because the prices are too high. They need to continue to execute ahead of the Street in order to fulfil the high expectations and face the competition coming from all angles. Any hiccups in either production or demand will be viewed as a clear negative for the stock.

Tesla in India

In December 2020, Nitin Gadkari, India’s transport minister, announced that Tesla would be entering the Indian Market in early 2021. This news caused jubilation among fans and overwhelmed netizens. Tesla Inc. has been registered as ‘Tesla Motors India and Energy Private Limited’ in Bengaluru, India. In the initial phase, Tesla plans to launch the Model 3 in India, which is Tesla’s cheapest variant. Even though Model 3 costs only around $28,000 in the US, it will cost about Rs. 60 lacs in India (double of what it costs in the US). This is because, in India, the Model 3 would be a ‘Completely Built-Up’ (CBU) vehicle, which implies that the Model 3 would be directly imported from its country of manufacture, China, and then sold in India.

The Indian government levies 100% import duty on such vehicles, in order to encourage the manufacturers to set up plants and assemble these vehicles in India. Tesla’s plans of launching operations in India however, have been subject to different opinions. Many believe that the Indian Market might not be as easy to crack as the Chinese market. Unlike China, India doesn’t possess huge Lithium reserves, required for the production of batteries used in EVs. Thus, it would have to import Lithium, increasing the costs of the Model 3 even more.

Furthermore, in India, electricity is generated using coal, which itself is a pollutant. The production of Lithium batteries causes pollution too (much more than what an Internal Combustion Engine causes) indicating that these EVs are not 100% green. Even though India is the world’s fifth biggest car market, lately, global players like Toyota and Ford have been scaling down their operations in the country due to lack of demand. Additionally, in India, Tesla would face severe competition from companies like Tata, Ashok Leyland and Mahindra, who have recently entered the EV segment. Tata Nexon EV, which starts from Rs. 14 Lacs, is certainly not as futuristic as the Model 3, but much more affordable for the Indian population.

On the other hand, it is also argued that Tesla’s entry into India would help the country to achieve its goal of having 30% private EVs on the road by 2030. Since the EVs do not rely on petrol/diesel, Tesla’s entry into India would aid the economy to save fuel and money in the long run. Therefore, expanding the use of EVs would enable it to cut down the imports of crude oil worth at least 300 Billion dollars.

However, whether Tesla will succeed in the Indian market or not is still questionable. The government, by promoting the localisation of Lithium batteries, development of necessary infrastructure for the operation of EVs (such as charging stations), and providing necessary incentives and concessions to Tesla, can definitely aid it to tap the potential for EVs in India, and encourage it to subsequently move on to assembling and manufacturing its models in India itself. There is tremendous potential that can be utilised to revolutionise the Indian automobile industry.

By Anirudh Gupta and Sanya Madan


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