India-China relations vs Tesla Company

India-China relations vs Tesla Company

GS-2: Foreign Relations

(IAS/UPPCS)

Relevant for Prelims:

EV Sector, Tesla CEO Elon Musk, Lithium (White Gold), NITI Aayog, India's EV Policy.

Relevant for Mains:

Why China is more important for Tesla Company, Challenges and opportunities for India in EV sector, India's EV policy, Way forward, Conclusion.

Source: TH

03/05/2024

Why in news:

Recently, Tesla CEO Elon Musk reached Beijing giving preference to China over India in terms of car manufacturing and trade.

  • According to a Reuters report, during Elon Musk's recent visit to China, he met Robin Zeng, chairman of Chinese battery giant China Contemporary Amperex Technology Co., Ltd. (CATL).
  • CATL accounts for two-thirds of global battery production, and is a supplier to Tesla as well as other major automakers such as Volkswagen AG and Toyota Motor Corp.

Why is China more important for Tesla company?

China's dominance in battery production:

  • China accounts for more than half of global electric vehicle (EV) sales, as China is completely self-sufficient in manufacturing lithium-based batteries and lithium is a critical element for EV manufacturing.
  • Currently, China is the leading country in the production of lithium (also known as white gold).

Presence of Tesla's largest plant in Shanghai:

  • Under its foreign policy, China had given permission to set up Tesla's largest plant in Shanghai in the year 2018.
  • Currently, the plant produces more than 1 million units of Tesla's most successful Model 3 and Model Y cars a year.
  • The Gigafactory, its first outside the US, is also important for Tesla as it supplies its cars to New Zealand, Australia and Europe.

India's import dependence for EV batteries:

  • India is still in the early stages of EV production and has historically had to rely on other countries for batteries. India, however, is pushing for the production of lithium-ion batteries through the production-linked incentive (PLI) scheme for advanced chemistry cell (ACC) battery storage.

Increasing tension between America and China:

  • Currently, geopolitical tensions are rising between the US and China due to several issues like trade dispute, anti-espionage laws and supply of technology like semiconductors. These activities are largely controlled by China. In such a situation, China is attracting big investors to American companies by providing financial help and infrastructure facilities.

India's EV Policy:

EV Policy 2024:

  • The Central Government has approved the Electric Vehicle (EV) Policy to promote India as a manufacturing hub.
  • Under this policy, duty concessions will be given to companies setting up manufacturing plants in the country with an investment of at least 500 million dollars, i.e. ₹4,150 crore in Indian currency.
  • Companies setting up manufacturing units of electric vehicles will be allowed to import a limited number of cars at lower customs duties.
  • According to the EV policy, if the investment is $800 million or more, a maximum of 40,000 EVs will be allowed to be imported every year at the rate of a maximum of Rs 8,000.
  •  In 2018-19, the Government of India increased the customs duty on CKD (completely knocked down) imports of motor vehicles, motor cars, motorcycles from 10% to 15%.

Objective:

  • Attracting investments from various global EV manufacturers, including Tesla.
  • To provide access to the latest technology to Indian customers.
  • To promote Make in India initiative and strengthen the EV ecosystem by promoting healthy competition among EV companies.

Significance:

  • This will lead to higher volume of production, expansion of the economy, lower cost of production and reduction in imports, reduce crude oil imports, reduce trade deficit, reduce air pollution especially in cities and have a positive impact on health and environment.

Challenges and prospects for India in the EV sector:

Challenges:

Lack of charging infrastructure:

  • Limited battery range.
  • Lack of sufficient number of charging points.
  • Battery charging takes a long time.

High Cost of Electric Vehicles:

  • The use of lithium-ion (Li-ion) batteries in electric vehicles is extremely expensive.
  • Limited availability of lithium.
  • 65% of the total known lithium reserves in the world are located in Bolivia and Chile and similarly 60% of the known cobalt reserves are located in Congo.

Dependence on China:

  • India's heavy dependence on China for parts for electric cars and other vehicles.

Disruptions in Automobile Sector:

  • It is a big challenge to prepare ourselves for the coming change in the environment favorable to electric vehicles.

Prospects:

  • India is currently the third largest automobile market globally. Tesla, the world's largest electric car manufacturer, seems to be interested in starting its business in India and the conditions are becoming favorable for it in India.
  • Despite China's dominance of the EV supply chain, its exports are increasingly coming under scrutiny in Europe and the US, presenting an opportunity for India.
  • The European Commission had launched an anti-subsidy investigation into imports of battery electric vehicles (BEVs) from China in October last year.
  • The United States has also warned that Chinese EVs are a threat to American carmakers.
  • EV sales are increasing in the country with a growth of 50 percent every year.
  • The government aims to achieve about 30 percent EV sales in the country by 2030.
  • Tesla's biggest Chinese rival BYD is already present in India. In such a situation, the company can enter India to compete with its rivals.
  • The Indian automotive market is currently targeting 30 percent EV market share by 2030.
  • Total sales of EVs in the country are expected to cross the 10 million mark by 2030. However, it can be argued that electric two-wheelers and three-wheelers are going to be a major contributor to this market share.
  • According to a NITI Aayog report, the largest demand for lithium-ion batteries (LIB) comes from consumer electronics such as laptops, mobile phones and tablets. The LiB market through EV sales in India was only 1 GW (compared to 4.5 GW for consumer electronics).
  • Keeping in mind the increasing demand for batteries, India is emphasizing on battery production through the Production-Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC) battery storage.
  • NITI Aayog says India is well-positioned to capture a larger share in the growing global market and could represent up to 13% of global battery demand by 2030.

Way forward:

  • Of course, it will take some time for India to mine lithium and reap its benefits, but the country now has ample lithium reserves. According to a report, the amount of lithium found in Rajasthan is larger than the reserves found in Jammu and Kashmir.
  • According to government sources, the amount of lithium present in India can meet 80 percent of the country's demand. However, it is not possible to refine the available quantity of lithium overnight. This is going to require a lot of time, technology and people.
  • Tesla company should be encouraged to come to India so that India can be made the hub of EV manufacturing.

Conclusion:

  • Tesla CEO Elon Musk arrives in Beijing to push for full self-driving (FSD), within a week of postponing his visit to India which underlined the importance of China in the global supply chain for the world's most valuable electric vehicle manufacturer. This is why China remains more important for Tesla than India.

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Mains Question:

Discuss the challenges and prospects for India in the EV sector.

Recently, Tesla company has considered China as a more important destination than India for EV manufacturing. Discuss.