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Tesla To Start Negotiations With The Indian Government To Make A ₹20 Lakh Car

Tesla representatives are set to meet India’s commerce minister to discuss plans to build a factory to produce an all-new $24,000 car

By Govindraj Ethiraj
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Tesla To Start Negotiations With The Indian Government To Make A ₹20 Lakh Car
On today’s episode, financial journalist Govindraj Ethiraj talks to Anuj Puri, Chairman of Anarock Group as well as B V Krishna Rao, President of the Rice Exporters Association and Managing Director of Pattabhi Agro.

Our Top Reports For Today

  • <00:56> After food, Inflation bites affordable housing, as segment sales crash in last six months
  • <08:13> India bans rice exports, affecting Indians overseas with no real benefit to locals, could the solution be to increase export duties further?
  • <20:36> Tesla is to start negotiations with the Indian Government to manufacture a Rs 20 Lakh Car
  • <23:23> Almost 50 years of launching a hotel arm, cigarette maker ITC says it will separate it’s hotels arm into a new company - ITC Hotels


NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Inflation Now Bites Homes

Sales of affordable housing have fallen to 20% of total housing sales in the first six months of this year or around 46,650 units in the top 7 cities. The same figure for last year was 31%. The total number of units sold was 228,860, so the base is rising as well.

There are two reasons for the fall.. The first is that homeowners are buying higher-priced and even more luxury homes including bigger homes, a trend we discussed here on The Core Report last month. Some of this is a pandemic fallout.

Second, prices are going up as all other input costs, including land prices, go up. Bottomline line, inflation is biting.

The outlook is not looking very bright either unless there are more sops or a shift to other models like rentals.
To understand what was happening in the affordable housing segment and what the current environment was reflecting on the state of the larger housing market and consumer preferences or buying propensity, I reached out to Anuj Puri, Chairman of Anarock Group whose research arm put out this data.

I began by asking him to describe the affordable housing market, particularly in the context of its somewhat recent history.

Interestingly, among the sales that did happen Mumbai metropolitan region and Pune saw the maximum sales with a 37% share and 21% share respectively.

The Delhi National Capital Region followed at 19%. All figures refer to the top 7 cities.

India Bans Rice Exports Triggering Alarms Among Indians World Over

Unfortunately, it’s always viral videos which draw attention to the magnitude of a problem, in this case, a sudden ban on rice exports from India in an effort to fight food inflation which rose last month to 4.8%
Within that, inflation in cereals, which include rice and wheat, touched almost 13% driven more by rice. Inflation in pulses which include various types of urad and toor dals too has been rising steadily, all staple foods in Indian homes, like rice.

India produces roughly 130 million tonnes of rice of which around 20 million tonnes have been exported every year in recent years. At this level, India contributes to 45% of the global rice trade and is thus an important price stabiliser.

The present ban is on non-basmati rice exports though there is a little catch there too, which we will come to. In general, prices of rice and paddy follow the minimum support price or MSP set by the Government of India, last set in the first week of June or last month.

The MSP just to fill you in is a safety net for farmers and also helps ensure food security and stabilizes market prices of staples. The government also uses the MSP to encourage farmers to cultivate certain crops.
The question of course is if the ban can keep prices down or bring them down further for domestic consumers. Equally, what will it do for farmers whose produce is exported and of course consumers elsewhere?

We would not really think of all rice consumers all over the world but given the demonstrated proximity to our diaspora and their interests, I am assuming videos of Indians climbing shelves to pull down bags of rice shelves in the United States would cause us some concern and embarrassment.

Interestingly, the Government raised export duties on September 22 to 20% and earned, from what I understand a neat $ 1 billion dollars. And despite that, there was no slowdown in exports

I reached out to B V Krishna Rao, President of the Rice Exporters Association and Managing Director of Pattabhi Agro based in Kakinada, Andhra Pradesh. Rao’s own company Pattabhi Agro is one of the largest rice exporters in India. I began by asking him to describe the rice production and distribution landscape and also what the way forward could be.

Tesla Is Readying For An India Debut 

In an earlier episode of The Core, I had expressed some scepticism about Tesla coming in with a car that would mostly land around Rs 70 lakh, given it’s pricing elsewhere and India’s own duty structures.
News agency Reuters is now reporting that Tesla representatives are set to meet India’s commerce minister this month to discuss plans to build a factory to produce what the company has described as an all-new $24,000 car which would be just under Rs 20 Lakh.

The cars would be produced for local market and export.

My own understanding is that this was the proposition - a lower-cost car - that was discussed in the meeting between Prime Minister Modi and Elon Musk in New York last month. Musk came out of the meeting saying he was a fan of Modi.

I also argued earlier that many of the other car manufacturers were beefing up their electric car offerings, from the Koreans, Europeans and now even Japanese, though more hybrid. And that Tesla was not necessarily at an advantage in a price-conscious market like India.

In case you didn’t know, the world’s largest electric car maker is not Tesla but BYD of China whose cars are also available in India but not marketed very aggressively i think.

Anyway, at Rs 20 Lakh, the contours of the battle for EV supremacy will obviously change though even then, a Rs 20 Lakh car at the factory gate will be much higher when it comes on the road and halfway to Rs 30 lakh if not more.

At that price, it is not a small car for sure and surely not competing in the Rs 15 lakh range where most of the volumes will lie, at least as the market now is structured.
In China, Tesla’s cheapest car the Model 3 Sedan sells for an equivalent of just over $32,200 or around Rs 26 Lakhs

But at this point, we don’t know how prices will evolve and there is some ground to be covered before the investment comes in and the plant is set up and manufacturing begins.

Significantly, we also don’t know what kind of subsidies will be offered and how that can change the price. Remember, in semiconductors, we are offering over 50% subsidies. Though if a Tesla has to be given a subsidy, many other electric car manufacturers including those in India can also demand it, assuming they also begin similar local manufacture. The car has to be indigenously produced.

An auto journalist I spoke to said despite there being so many other players, the Tesla badge was powerful and aspirational in the iPhone league to use a mobile phone analogy and would surely shake up the market when it arrived.

After almost 50 years, ITC Hotels demerges

ITC, the cigarettes to consumer products to hotels company and much hated and loved stock in the Indian markets which also crossed the Rs 600,000 market capitalisation figure last week has announced it was spinning off its hotel arm.

Finally. The hotel's arm was launched in 1975.

The clamour for this spin-off has been there for some years now but many reasons could have delayed it.

To put the hotel business in context, ITC clocked gross revenue for the year ended 2022-23 at Rs 69,480 crore, up around 18% from the previous year. Profit after tax stood at Rs 18,753 crore, up almost 24%.
The division is small, with a revenue of Rs 2,700 crore, 120 properties and 11,500 rooms in its kitty. Last year, the hotels business comprised about 4% of ITC's total revenue and 2% of EBIT. In the listed space, ITC is the second largest hotel chain in India, after Indian Hotels.

As timing goes, this is a good one because the hospitality industry is doing very well. Almost all resort hotels in the country are at near full occupancy at very high rates almost all through the year now. City hotels are holding at higher levels.

Whether this is still a post-pandemic boost or a new normal is not clear but business travel has definitely returned.

Global chains like Marriot, the largest in the world are expanding aggressively in India with stated plans of 250 hotels in India in 2 years' time from around 140 now. Marriot at this level is bigger than ITC in India.

Hospitality stocks are doing well too, including companies like Indian Hotels which owns Taj.

ITC said its board accorded its in-principle approval to the demerger of the Hotels Business under a scheme of arrangement, with the Company holding a stake of about 40% in the new entity and the balance shareholding of about 60% to be held directly by the Company’s shareholders proportionate to their shareholding in the Company.

Interestingly, ITC shares fell over 4% to Rs 468 on the Bombay Stock Exchange as investors felt ITC had kept a higher stake of 40% with itself in the new subsidiary to be called ITC Hotels. The demerger shall be placed for board approval on August 14.

Not to forget the Indian markets where the main indices were down for the second day in sequence, this time driven by ITC and Reliance Industries both heavyweights on the indices. Reliance you may recall posted a lower-than-expected net profit number in the latest quarter.

In a day of many swings, the BSE Sensex closed with a loss of 299 points at 66,385. And the Nifty 50 ended 73 points lower at 19,672.

We spoke of how banks were turning in very strong results in the last quarter. Despite a weak market, ICICI Bank's shares hit a fresh 52-week high of Rs 1,008.

Leading brokerages have put buy calls on ICICI Bank which reported a 40% increase in net profits for the last quarter.

Elsewhere, in a move that is usually seen as a signal for how interest rates are going, the Employees' Provident Fund Organisation (EPFO) has declared the interest rate at 8.15% for Employees' Provident Fund (EPF) accounts for the financial year 2022-23. In 2021-22, the government had notified an 8.10% annual rate of interest, down from 8.50% in 2020-21

And before I go, Elon Musk has replaced the word and the name of the company Twitter with X. There is much to what it will X be and so on. Hint, like a WeChat of China. That can wait for another day
Meanwhile, do find us on X and we can X each other.
That’s it from me for now, I hope you have a great day ahead, do send us your feedback and we would love to hear from you, including suggestions which I will carry here.

Have a great day!