Will Tesla Make in India
Elon Musk is one of America’s most controversial technology business leaders. No entrepreneur since Apple’s Steve Jobs, who died in 2011, has quite captured the world’s imagination.
Musk ignited the electric vehicle (EV) revolution with Tesla. His other marquee company, SpaceX, is doing the same with rocket technology. But there is a growing army of critics who say Musk’s hard-charging style could drive Tesla into bankruptcy. Last month activist shareholders led by CtW Investment Group tried to oust Musk as chairman of Tesla, citing the company’s poor financial performance and behind-schedule deliveries of Tesla’s EVs. The rebellion failed. Musk comfortably won the shareholders’ ballot at Tesla’s annual general meeting.
With Maruti announcing the launch of an entire EV ecosystem of cars, batteries and charging stations by 2020 and Mahindra and Tata also accelerating their EV plans, the fate of Tesla matters to the Indian automotive industry. If the pioneer fails in its home market, it could dampen sentiment for the most important evolution in the industry since Henry Ford began mass assembly line production of cars a century ago.
The Indian government is following Musk’s progress closely after he said recently that India’s regulations were not “conducive” for Tesla to begin operations in the country. Musk tweeted: “Would love to be in India. Some challenging government regulations, unfortunately. Deepak Ahuja, our CFO, is from India. Tesla will be there as soon as he believes we should.”
Musk had been keen to invest in India from as early as 2016. He spoke of building a giant lithium-ion factory (known as a Gigafactory) but the onerous regulations imposed by India’s leviathan bureaucracy clearly put him off. In May 2017, Musk had tweeted with a trace of disappointment: “Maybe I’m misinformed, but I was told that 30 per cent of parts must be locally sourced and the supply doesn’t exist in India to support that.”
Tesla itself has a bagful of problems to worry about at home. In a searing article last month, The Economist wrote: “In April 2018 Adam Jonas of Morgan Stanley said the next three months would be the ‘most critical time in Tesla’s history’ since launching its upmarket Model S six years ago. The move from a niche in expensive electric cars to bringing battery power to the masses has been troublesome, to say the least. The firm had once hoped to be making 10,000 of its cheaper Model 3s a week by the end of 2018. But difficulties with a highly automated production line mean that just over 2,000 are rolling out of the factory each week. Even a revised goal of 5,000 looks distant. As a result, cash is draining away. So are top executives. Around 20 have departed since the start of 2017.” At last week’s annual shareholder’s meeting, Musk brushed aside such concerns. He said Tesla would show profits in the July-September 2018 quarter, reversing years of humongous losses.
Meanwhile, Tesla is not the only global tech firm complaining about the “unease” of doing business in India. Apple, for example, has long wanted to make iPhones in India but the 30 per cent local sourcing condition has stalled its plans. Union Minister for Information Technology Ravi Shankar Prasad, when confronted by Apple’s reservations to make India a production hub for its iPhones, said India was negotiating with the Silicon Valley company with an “open and flexible” mind. He added: “We are in the process of serious engagement with Apple. Let us await their response. I can only tell you, Apple will not be a loser in India … but let us wait for the formal proposal. Naturally, incentives cannot be in a manner that dislocates the current players. But we are open and flexible in case of Apple (and) what they bring to the table.”
India climbed 34 places in the World Bank’s 2017 Ease of Doing Business (EDB) rankings but as any entrepreneur will attest, state-level permissions to start a business remain unnecessarily tiresome. The Centre has taken bold steps to amend the Companies Act and lift roadblocks in the way of incorporating new firms. But regulations like the 30 per cent local sourcing conditionality prevents India from developing into the low-cost, high-value manufacturing centre it could be.
Tesla and Apple are two of the world’s most high-profile companies. If they are hesitating to set up manufacturing facilities in India, clearly there is a deep-rooted, systemic problem in the decision-making establishment. Interestingly one of the most successful technology-driven entities in the country is the Indian Space and Research Organisation (ISRO). Its success offers a clue: ISRO is headed and run entirely by scientists. It has acquired a global reputation for low-cost, highly reliable space launches.
Government decisions often send contradictory signals. India’s military preparedness has been a particular victim. The recent migration from Make1 to Make2 in defence contracts is a case in point. Contracts for weapons systems have been cancelled to the delight of top Indian private sector defence firms that had either been disqualified in the Make1 pre-bids or lost out during the bids. Such malignant corporate rivalry delays critical defence equipment at a time when India faces hostile neighbours on both the western and eastern borders. Fresh bids under new rules of Make2 will now be called, delaying critical weapons systems.
The bureaucracy in the Ministry of Defence (MoD) is notorious for holding up contracts, changing rules midway, and allowing arms dealers (though they are officially banned) free rein. This has led to the MoD being the crucible for the maximum number of corruption cases over the decades – starting with the Bofors howitzer and followed infamously by Scorpene submarines and AgustaWestland VVIP helicopters. It is this combination of inconsistent regulations, corruption and private sector cronyism that has forced iconic firms like Tesla and Apple to think twice about setting up manufacturing facilities in India.
If Prime Minister Narendra Modi’s ambitious Make in India scheme is to succeed and attract the Teslas and Apples to the country, India’s corroded ecosystem of cynical bureaucrats, corporates and politicians must be reformed. That is a challenge the PM will have to meet head-on.
