Could Tesla Enter into India or South Africa

The International/Global Operations and Their Key Markets and Potential Competitors
Part I: Key Market
Tesla (TSLA) is a leader in the electric vehicle and solar and powerwall services. However, because of the company’s broad entry into a number of different market segments (from cars to trucks to batteries to solar power), Tesla has a number of competitors around the world, including: Tata, GM, Honda Motor Company, Kandi Technologies, Navistar, Oshkosh, PACCAR, Toyota and many others. Tesla maintains a network of 80 stores across North America, Europe and Asia and has reported gross revenues of more than $2 billion in recent years. Its market cap is currently over $50 billion. In order to compete on the global scale, Tesla must continue to internationalize operations.
Potential regions and countries that Tesla should target include developed markets (DMs) and emerging markets (EMs): Europe and Asia are already targets of Tesla, but countries such as Nigeria, South Africa, India and regions in South America could benefit from Tesla’s solar power and powerwall products as well as from its electric cars and electric car grids. With India and Africa becoming huge players on the global stage and more and more corporate eyes turning to these regions, Tesla should make a play to capture market share early. In India, its main competitor would be Tata, but in Africa nothing is really settled and countries like Nigeria and South Africa are looking for corporations to help transform their nations into first world powerhouses. Indeed, Tesla’s powerwall and solar panels have not gone unnoticed in these regions, as even the Hindustan Times (2017) has reported on Elon Musk’s installation of solar roofs—so the interest is there.
As Koppelaar and Middlekoop (2017) report, Tesla is leading the electric power revolution that is seeing many nations convert their old infrastructure from fossil-fuel-based to green energy-based. Agar and Renner (2016) have examined whether 100% renewable energy is possible in urban areas and found that where collaboration between government leaders and industry leaders exist, it is very much possible.
In India, the size of the market is substantial: Bavirisetty (2017) notes that “India is expected to become the world’s third biggest solar market by end of 2017, after China and the US. The cumulative solar capacity, including rooftop and off-grid segments, has crossed 10,000 MW. With an average capacity addition of 8-10 GW per annum, the total installed capacity is expected to reach around 18 GW by end of 2017.”  In South Africa there is just as much push for solar energy: “South Africa?s Renewable Energy Independent Power Producers Procurement Programme (the REI4P) is an extensive initiative to install 17.8 GW of electricity generation capacity from renewables – wind, solar, biomass, biogas and hydropower – over the period 2012–2030” (Walwyn & Brent, 2015).
In India, solar power accounts for nearly 40% of all new power capacity, and much of that is thanks to the Modi government, which is pushing for renewable energy (Sushma, 2017). IBEF (2018) reports that “around 293 global and domestic companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power in India over the next 5–10 years” and that “between April 2000 and March 2017, the industry attracted US$ 11.59 billion in Foreign Direct Investment (FDI). Tata is a major player in the region and has “invested Rs 200 crore (US$ 31.05 million) in their joint venture (JV), Tata Cleantech Capital Ltd (TCCL), to increase its loan book for investing in renewable energy projects” (IBEF, 2018). Tata has an EV model available for purchase.
In South Africa, Soitec (a French firm), Sun Tank (South Africa’s leading solar heating firm), and Solar Capital are leading the way. Solar Capital has developed a solar farm in South Africa: “a 175-megawatt facility that spreads over almost 500 hectares” (CNN, 2016). In terms of EVs, only BMW and Nissan have EV models available, but Volkswagen SA is in the marketplace and in development of an EV model that may enter into the SA market.
The balance of trade in India stood at a deficit of 95.37 billion USD in 2016. In South Africa, the balance of trade stood at a deficit just shy of a quarter of a billion USD. The exchange rate for India currently is currently USDINR: 63.5875, which is near its all-time high peak of 69.1, which was touched in 2013. The exchange rate for South Africa is USDZAR: 11.85, which is down considerably from its 2016 peak of nearly 18 but still above its historical average of under 10.
India’s percentage of domestic production exported is: 19.2%. South Africa exports 30.3% of its GDP (Worldbank, 2018). Domestic consumption imported is: India—20.6%, South Africa—30.1%. Cost of labor in India is just under 1 USD. Cost of labor in South Africa is rising as is now at 146 index. Tax level for a foreign company in India is 41%. For a domestic company it is 25%. For a foreign company in South Africa, the tax level is 28%, domestic is 20%. The presence of government in both countries is very strong, and the percentage of ownership allowed to foreign companies and/or investors in both countries is unlimited. Local laws and regulations related to the EV and solar energy markets are still being formulated.
Part II: Competitors
The three major competitors for Tesla in these regions are: Tata, Volkswagen SA and BMW. In South Africa, only 100 EVs were sold in 2016, and only the BMW i3 and Nissan Leaf are currently sold locally (Williams & Jordan, 2017). BMW has 50% of the market share currently in SA in the EV segment, but that market is still very small and Tesla could enter in and rapidly alter it. Tata’s market share in India is dominant, and has just received an order from the government for 10,000 EVs, a number it expects to double by 2020 (Iyengar, 2017). Volkswagen SA is at 27% in South Africa but has not participated in the EV market yet.
Tata’s strategy is based on history, domestic nativity, and good relations with the government. It is a chosen vehicle of investment for local politics. BMW’s strategy is to move slowly in South Africa, as is Volkswagen SA’s, and to maintain a footprint but not to try to revolutionize the market with a grand new vision. South Africa is still making its way as an emerging market and the infrastructural needs are primarily energy related, which is why the main focus in South Africa is on solar power, where the main players are smaller and not as large as Tesla in terms of market cap.
Tata’s prices of products offered are very competitive and are much cheaper than foreign company products which are viewed as a luxury in India. The same is essentially true in South Africa, where foreign producers are viewed as luxury items. The Tata Tiago EV is priced at a very affordable 3.56 lakh or approximately 5500 USD. In South Africa, BMW’s i3 is R630,000 or approximately 50,000 USD. Clearly the foreign competitors in South Africa are far more expensive than the local producer in India, and the foreign product is to be viewed as a luxury vehicle. In terms of focusing on energy, the competitors are much more engaged on a local level at producing solar power and using solar panels, but these companies are considerably smaller and have no substantial global footprint at the time.
Tata has a long history of quality-related actions and procedures and its position in the Indian market is concrete. There is no considerable threat to its position in India and a foreign competitor would have to appeal to a segment of the market that is much more high-end, which is appropriate for Tesla. In South Africa, BMW and Volkswagen as well as Nissan all have quality-related actions, such as a strong service sectors, strong brand imaging, and appeal to high-end consumers. They are known for producing quality products and their reputation precedes them in the market place.
BMW’s EV is on the higher end but is designed for performance and for being energy efficient. It is a much more powerful model than the Tata EV sold in the Indian marketplace, but it also has not moved nearly as many models as Tata has been able to thanks to a lucrative government contract. Tata’s quality and affordable products make it an appealing option for a government like Modi’s in India, which is looking for an affordable option when it comes to advancing the country’s aims and reducing the smog and pollution problem. South Africa is in a similar boat with its main municipalities struggling to increase revenues and maintain infrastructure levels at current settings, so foreign companies like BMW and Volkswagen SA are not currently pushing for the promotion of EV products as heavily as Tata is in India. India’s infrastructure is more stable in this respect and its government far more advanced on the global stage. This may be one reason the energy market in South Africa is currently focusing on solar power, which is where a company like Tesla could make an impact.
References
Agar, B., & Renner, M. (2016). Is 100 Percent Renewable Energy in Cities Possible?.
In State of the World (pp. 161-170). Island Press, Washington, DC.
Bavirisetty, S. (2017). Solar energy and electric vehicles could freeze India’s fossil fuel
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CNN. (2016). Inside Africa’s largest solar farm. Retrieved from
https://www.cnn.com/2016/12/12/africa/de-aar-solar-south-africa/index.html
Hindustan Times. (2017). Tesla completes the first installation of its solar roofs.
Retrieved from https://www.hindustantimes.com/tech/tesla-completes-the-first-installation-of-its-solar-roofs/story-I0f3woF6xYNp7P7jBPeI7M.html
IBEF. (2018). Power sector India. Retrieved from
https://www.ibef.org/industry/power-sector-india.aspx
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http://money.cnn.com/2017/12/01/technology/india-electric-cars-mahindra-2030/index.html
Koppelaar, R., & Middelkoop, W. (2017). The TESLA revolution: why big oil is losing
the energy war. Amsterdam University Press.
Sushma, U. (2017). Silver lining. Retrieved from
https://qz.com/1134798/solar-power-accounts-for-nearly-40-of-indias-new-power-generation-capacity/
Walwyn, D. R., & Brent, A. C. (2015). Renewable energy gathers steam in South
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Williams, F. & Jordan, D. (2017). Electric cars. Retrieved from
https://www.fin24.com/Companies/Industrial/electric-cars-the-future-also-for-sa-20170804
Worldbank. (2018). Exports of goods and services. Retrieved from
https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS