The Pie In The Sky!
Late 2020 I wrote a piece in BW titled ‘Bye bye Mr. American Pie’ when Harley-Davidson finally decided to exit the market handing over the remains of its operations to Hero MotoCorp. In ten odd months yet another US auto brand, Ford calls it a day while the current poster boy Tesla grapples with the complexities of emancipating the Indian market.
Except for Apple and HP few US ‘hardware’ brands have stuck it out and done well here. The other successful brands are mostly in the consumables space…either data or drinks. What makes one US brand tick while the other fails? And what lessons are there for Tesla as it will be the only representative of its country in the Indian market now?
In this sequel to my piece of November 2020 I would like to decode both questions.
Earlier I had shared that there are 5 reasons why an H-D or GM could not perform in India – a sense of entitlement, banking on legacy, getting fooled by the ‘largeness’ of the market, the experience not living up to customer expectation and, lack of relevance to the target customer.
Why Ford faded away?
I use the term ‘faded away’ and not ‘folded up’ because that is exactly how the Ford journey was since entering India in a JV with Mahindra through the Escort way back in October 1995. It is like a bright photograph on the wall exposed to sunlight that initially brightens up the space but slowly starts fading eventually into a hazy blur. Over the last 10 years its domestic market share hovered between 2.50-3.00% and never could breach the 100,000 units mark any year.
Starting off with hits like the Ikon and Fiesta, setting up a formidable plant and vendor base in Chennai, exploring export markets across the Ford world, one would have expected the brand to steadily move its way up to challenging a Mahindra and Tata for sure.
Ford did not fall prey to all the five reasons I mentioned above, as did GM. It was definitely more committed to the market. It built a second plant in Sanand, set up a stable network, launched very competitive service programmes and was gradually building a product portfolio of some consequence. The service campaign remined me of their iconic UK campaign that said, “It may be your car, but it’s still our baby.”
Just that all this took more than two decades, the initiatives were not taken concurrently but one after another, and Dearborn got tired. When the time came to shift into higher gear, the bosses were more concerned about the US market, electrification, China, and other key markets where it had to claw back market share. India was never a key market. It was only a potential one.
The statement of keeping in touch with the Indian market by selling the Mustang and the Mustang Mach-e is a pie in the sky!
India is a 10,000 metres race
The situation is not unique to Ford or GM. It is not intrinsic to only US brands. It is the dilemma most global brands face in India when they have not been able to make a dent as they have been non-committal. The sense of entitlement never escapes them especially if they have done well in China or Brazil. They are not willing to accept that the markets are very different, thriving on their own dynamics and suffering from their unique deficiencies.
To make the most of a market like India, one needs to move at a faster multi-pronged pace and the ‘wait and watch’ strategy does not work. This is neither a 400 metres sprint nor a marathon.
India is like a 10,000 metres race – you need to always be at least in the first half of the running pack to pick momentum when the leaders move up the gears. That ensures you remain in the top 4-5 when the race ends, if not a podium position. Those of us who watched the styles of Selemon Barega, Joshua Cheptegui or Mohammed Ahmed in the 10,000 metres race in Tokyo a few weeks ago would know exactly what I am implying.
I was discussing with a journalist friend from Reuters about the entire Ford episode and I rudely commented that US companies sometimes treat markets just like the US government treats countries – enter by entitlement, lounge around, spend lots of money in the wrong places, have no game plan hoping ground-level happenings are in your favour, and after decades of doing nothing, pull out leaving partners, employees, and collaborators in the lurch! It is definitely rude but truthfully rude.
Will Tesla turn the tide?
In a single word, depends.
In multiple words, let me explain my continuing rudeness. It is not that we are not looking forward to Tesla whirring about on our roads. We look forward to Porsches and Lamborghinis too. The impact will happen when people almost decided on a Toyota Fortuner will switch allegiance to the Tesla Model 3. The groundswell created by Tesla in the US and China needs to be experienced in India too for it to be the first successful US auto brand here.
Price will be a crucial factor for the same. The market for vehicles costing Rs.20.00 lakhs and above is close to 250,000 in India today. As you go up the price point the mountain peak gets narrower. Luxury or prestige brands like Mercedes-Benz and BMW are stuck at a cumulative of around 50,000 units a year.
Price will be a crucial factor for the same. The market for vehicles costing Rs.20.00 lakhs and above is close to 250,000 in India today. As you go up the price point the mountain peak gets narrower. Luxury or prestige brands like Mercedes-Benz and BMW are stuck at a cumulative of around 30,000 units a year and the segment does not see immediate signs of revival.
Tesla has to decide how it positions itself in the Indian market – as a luxury brand to show off or as a technological gamechanger to be seen with. 3 million Indians bought iPhones in calendar year 2020, most of them costing below Rs.50,000 [XR, 11 and SE models]. They bought it not because it was American but because it is an Apple product, irrespective of where it comes from. One buys the iPhone not as a mere phone but as a technological marvel that comes at an affordable price point. The 12 sold very few numbers till the company started promotional offers in the festive season. After all this, the Apple iPhone was only 4% of all smartphone buyers in India last year.
If Tesla is to be a gamechanger it has to look at its price point. The loyal brand advocates will not be the uber rich who change vehicles every two years and need to be seen with the latest, but those who will save up for a Tesla and choose it over a Toyota or Hyundai or Honda. To reach out to them it needs to review its business plan and figure out how to reach the sweet spot of Rs.25-30.00 lakhs to create the groundswell.
In that context if it has to build in India, so be it. Asking the government to reduce duties to allow them CBU imports from Giga Shanghai is trying to take the back door entry. I fully support the Indian government’s clear stand that to sell in adequate numbers in this market, a brand will have to ‘make in India’. The incentives to invest in this market and new technologies need to be the same for domestic and global players. There is no other option unless Musk takes a strategic call of incurring losses to promote and penetrate for the initial couple of years before setting shop.
Tesla will face intense competition from the likes of Hyundai, MG, Tata, Toyota, and Renault. While none except Toyota possibly matches on brand might, there will be other parameters apart from price like charging infrastructure, serviceability, and ease of repairs that will play their role in brand choice. A Tata Nexon EV might stand up to a Tesla Model Y and actually win when a completely rational evaluation is done.
I am sure the most powerful person from the greatest nation on this planet would love to see millions of Indians stepping out of their Teslas speaking on their iPhones sipping Coke and munching McFries. That would be the final domination of the world.
Till then, it shall remain just a pie in the sky!
