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Lessons Tesla's Musk can learn from Apple to enter India

By Surajeet Das Gupta
January 25, 2022 15:21 IST
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The tech giant learnt the hard way that patience, negotiating flexibility and industry cooperation work better than public statements and tweets when attempting to enter India.

Surajeet Das Gupta reports.

Tesla’s tryst with India is clearly not going as smoothly as it may have expected.

That is why two years after Elon Musk first announced that his company would come to India, then registering a firm in Bengaluru to import cars and holding discussions on setting up company-owned retail showrooms, the maverick entrepreneur’s terse Twitter response to a query was: “Still working through a lot of challenges with the government.”

Musk has made no secret through Twitter that India’s import duties (60-100 per cent) on electric vehicles (EVs) are the highest in the world among large countries and the company has asked for a sharp reduction as a condition for entry.

 

He has also complained that clean energy vehicles are treated on a par with petrol vehicles, which is inconsistent with India’s climate goals.

Invitations from Telangana, Maharashtra and Punjab notwithstanding, Musk’s demand for a sharp import duty cut has divided the auto industry.

Domestic manufacturers such as Mahindra & Mahindra and Tata Motors, through industry lobby Society of Indian Automobile Manufacturers, have stated that a duty cut would be unfair when the government has set a high localisation threshold for Indian industry.

But Musk has support from foreign carmakers who also want duty cuts.

Government officials said Musk cannot demand duty reduction without committing to manufacturing in India.

Musk’s problems with the government extend to Space X, which runs Starlink.

The satellite broadband service provider was pulled up by the Department of Telecom (DoT) last month for offering Indian customers pre-booking opportunities.

DoT put out an advisory warning subscribers that Starlink didn’t have a licence to operate, violating telecom rules.

The aftermath was avoidable: Starlink’s India head and chairman of SpaceX India Sanjay Bhargava, who says he is Musk’s friend, resigned citing “personal reasons”.

And at the start of this year, SpaceX had to announce that it was returning to over 5,000 customers the $99 each that they had paid for pre-booking.

Telcos say Tesla got off lightly; had any other company behaved this way, government action would have been far more punitive.

It is also argued that Tesla made a strategic mistake by not joining the Indian Space Association, the satellite players’ lobby that includes Sunil Mittal who runs OneWeb (Starlink’s competitor globally), to take up industry issues.

Musk’s problems are not very different from those that Apple Inc confronted in its early attempts to enter India.

Six years later, though, the Cupertino-headquartered giant has become something of a poster boy for foreign manufacturing in India — and it offers a lesson Musk could profitably follow.

In 2016, days before Apple Inc CEO Tim Cook made his maiden visit to India, the government rejected Apple’s request for import and sale of refurbished phones.

Cook had said he wanted to set up Apple Inc-owned retail stores; the government top brass also wanted him to manufacture in the country.

In 2017, Apple’s demand for duty concessions (on capital equipment, components, consumables) as a condition to set up manufacturing and a relaxation on the contentious 30 per cent local sourcing condition for foreign direct investment in single-brand retail stores was rejected in Parliament by Nirmala Sitharaman, then commerce minister.

Stalled, Apple Inc changed tack.

Instead of running the show from the US, it put together an India team in 2018 — that included local experts who would work closely with the government and industry associations.

“The logic was clear,” said a source closely associated with the subsequent discussions.

“It was to align the Apple business in India with government priorities — enhance manufacturing, push the ‘Make in India’ agenda and generate employment.

"So the idea was now to build a win-win model for everyone.”

Queries to Apple and Tesla did not elicit a response.

By dint of patience and negotiating flexibility, it took Apple Inc three years of arduous discussion and presentations to have some of the conditions for FDI in single-brand retail tweaked so that it could set up Apple-owned stores.

For instance, it convinced the government to account for the manufacturing value of its contractors for determining “local sourcing” (that’s because Apple does not manufacture anything anywhere in the world).

Apple also had to assure the government that it would not indulge in predatory pricing, which would impact local retailers if single- brand rules were tweaked.

It was allowed to set up an online store before the physical store and committed to keeping it a platform for premium offerings, abstaining from heavy discounting practices like other e-commerce players.

Even the production-linked incentive (PLI) scheme for mobile devices was signed after over 10 months of detailed negotiations and 40 to 50 meetings with different government departments.

At the same time, Apple also conceded to demands of competing players even though it did not benefit from them so that the scheme was up and running for everyone.

For instance, the minimum value of the phone that was eligible under the PLI scheme was pegged at $300.

This was reduced to $200 as many players said it was too high and could benefit only Apple Inc.

Then, the investment requirement for the PLI scheme was brought down from Rs 1,500 crore to Rs 1,000 crore to accommodate a global competitor that had made a large investment in a plant.

But Apple successfully held its ground in opposing a move to credit only 50 per cent of the value of a second-hand machinery, which it would bring from China, for calculating the eligibility criterion for investment.

It argued that this concession would not harm Indian manufacturing because these machines are not made in India.

The other major lesson the US giant learnt was to sort out differences over government policy through negotiation rather than public statements and tweets.

For instance, in the recent strike at Apple vendor Foxconn’s plant near Chennai over a food poisoning incident, the company did not criticise the government for lack of infrastructure support or the police’s failure to control unions.

Instead, it apologised and put its vendor on “probation” till it sorted out its catering processes, despite the revenue losses that closure would entail.

Sources said in 2020 Chinese company BYD had finalised a deal with Apple Inc to manufacture iPads in India.

But with the government putting stringent conditions on Chinese investment, it decided to go only with Taiwanese contract manufacturers.

When it came to lobbying for a one-year extension of the PLI scheme owing to Covid-related delays, Apple was careful to route its demands through industry lobbies — India Cellular & Electronics Association, MAIT and Ficci — rather than individually.

And just like in China, where it has spawned at least a dozen billion-dollar local component companies, it is already working with the Tata group and talking to numerous others to build the component eco-system both to supply India and its global network.

In short, Apple may have a useful playbook for Musk to follow if he wants to enter the Indian market.

Photograph: Jason Lee/Reuters

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Surajeet Das Gupta
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