India File: Tesla tremors hit automakers

Star Health and Allied Insurance

25/02/2025 04:25

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Feb 25 - By Ira Dugal, Editor Financial News, with global
Reuters staff.
    
    Elon Musk's Tesla  TSLA.O  seems to be nudging closer to
selling its electric vehicles (EVs) in India, unnerving its
automakers. How much of a headache will Tesla be for Indian
automakers? That's the focus of our analysis this week. 
    Also, Indian insurers may pitch for a one-of-its-kind charge
linked to New Delhi's air pollution. And the central bank
announces a mega cash infusion to ease rates. Scroll down for
more on both those stories. 

THIS WEEK IN ASIA 
** Trump orders use of CFIUS to restrict Chinese investments in
strategic areas
** Bangladesh and Pakistan resume direct trade after more than
50 years    
** Bank of Korea resumes rate cuts as economic risks grow    
** OpenAI removes users in China, North Korea suspected of
malicious activities
** DBS set to cut 4,000 jobs over 3 years due to AI, CEO says   


    NAMASTE INDIA
    Tesla is getting ready to hit Indian streets.
    The company has selected showrooms in New Delhi and Mumbai
and is stepping up hiring plans. Signs that Musk is
fast-tracking plans to enter the country come shortly after his
meeting with Prime Minister Narendra Modi in Washington earlier
this month. 
    If Musk pushes ahead with his plans to enter India,
automakers, who are already struggling with pockets of weak
demand and intensifying competition, will have one more battle
to fight - holding on to their better-off customers.  
    Passenger vehicle sales in India grew 4% in 2024, the
slowest in four years, industry data showed. And EVs, where many
automakers have focused their new launches expecting a consumer
shift, have seen patchy demand because of high prices and an
inadequate charging network. 
    Musk has long delayed plans to sell his EVs in India, partly
due to the high import duties of nearly 100% that the country
levies on them. While that is yet to change, India is reviewing
import duties across a number of categories, under the threat of
reciprocal tariffs by the United States. 
    Musk's close relationship with U.S. President Donald Trump
may allow him to wrangle some concessions without giving India
what it really wants – for Tesla to manufacture in India. Trump
has already made his dislike for that idea public, saying it
would be "unfair" to the U.S. for Musk to manufacture in India
to avoid paying the high levies placed on imported vehicles. 
    Read this BreakingViews piece by Shritama Bose to understand
why Musk is not India's ideal foreign investor. 
    
    TECHNOLOGY VS PRICING
    Tesla's impending entry hit shares of major Indian
automakers on Friday. Mahindra and Mahindra  MAHM.NS  slid 6.2%,
while Tata Motors  TAMO.NS  and Hyundai Motor India  HYUN.NS 
dropped 2.5% and 3.5%, respectively.
    Both Mahindra and Tata Motors have previously lobbied
against a cut in import taxes on EVs.
    Analysts differ on just how much of a dent Tesla can make in
the incumbents' market positions in India.
    Citi believes Tesla's technology will give it an edge. 
    Tesla and China's BYD  002594.SZ  – which is also expanding
its offerings in India – have access to proven technology and
manufacturing processes, which will offset the advantages of the
incumbents including their wide sales and service networks, said
Citi in a February 21 note. 
    The "hegemony" that local automakers have enjoyed in
combustion engine cars has led to many foreign automakers
meeting with limited local success in India but that may not
hold in EVs, Citi said. 
    CLSA, though, feels Tesla's tech advantage will be taken
away by its pricing. 
    With various taxes and the import levies, the cheapest
Teslas, priced at $35,000 in the U.S., could be sold at around
3.5 million Indian rupees ($40,377). That is almost three times
the 1.2-million-rupee average selling price of cars in India.
    About two-thirds of the EVs sold are priced under 2 million
rupees, according to an estimate from Macquarie Research.
    "Factors such as spacious interiors, features, aesthetics,
better resale value visibility and right pricing are the key
drivers in car purchase decisions, regardless of the powertrain,
in our view," CLSA said in a February 21 note. 
    Will Tesla leave existing brands in the rear view mirror?
Write to me with your views at ira.dugal@thomsonreuters.com.  

QUOTE OF THE WEEK
    "We have to start thinking about pollution as a separate
factor in the pricing (of insurance) in the sense that can we
then start executing a particular charge for the areas which are
impacted by it?"  
    Amitabh Jain, the operating chief of Star Health  STAU.NS , 
India's No.1 standalone health insurer, is among industry
executives pitching for an increase in health insurance premiums
for New Delhi, which has seen toxic air year after year. 
    The pollution has led to more Delhi residents
seeking treatment for asthma, chronic obstructive pulmonary
disease (COPD) and cardiovascular conditions in 2024, higher
than in any prior year, insurers are arguing. 
    Read that Reuters exclusive here. 

MARKET MATTERS  
The Indian central bank announced a mega $10 billion forex swap
as a way to infuse cash into the Indian banking system. 
    The swap followed large dollar sales from the central bank
to protect the rupee, which in turn had withdrawn rupee
liquidity from the banking system, hurting the central bank's
effort to bring down interest rates and lift growth.
     The central bank had infused liquidity worth 3.6 trillion
Indian rupees over the past five weeks but analysts had said
more will be needed.
    Short-term bond yields and the forward premium on the rupee
fell in response to the RBI's swap.
($1 = 86.6840 Indian rupees)

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Indian rupee 1-year forward premium implied yield    https://reut.rs/4fv3tSe
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 (Reporting by Ira Dugal; Editing by Muralikumar Anantharaman)
 ((Ira.Dugal@thomsonreuters.com; +91-9833024892;))