Tesla’s India launch to threaten domestic EVs? D-Street eyes 37% upside on THIS stock after 15% correction; Buy or Sell?

Tesla’s India launch: Leading auto major Mahindra & Mahindra (M&M)’s stock price has corrected ~15 per cent in the past two weeks compared to the domestic benchmark Nifty 50 which was down ~three per cent, largely after reports of Elon Musk’s electric vehicle (EV) giant Tesla entering India, with a reduced duty structure. M&M stock has risen 43.38 per cent in one year, however it has given negative returns of 10.22 per cent year-to-date (YTD).

According to domestic brokerage Elara Securities, Tesla is more likely to enter the country with the pricier Model Y and not even the Model 3, leave alone the yet to be launched Model 2. “We believe it is likely to expand the battery EV market than impacting M&M battery EV,” said the brokerage.

Also Read: M&M share price declines 6% amid plans to invest in rights issue of listed subsidiaries

The D-Street brokerage added that Tesla’s Model Y would likely come at price point of ₹4.5-5 million at a reduced 15 per cent import duty significantly higher than M&M BEV products of ₹2.8 million. This indicates that Elon Musk’s much-awaited Tesla launch in India would expand the battery EV market.

Decoding Tesla’s entry in India: Will it impact D-Street’s EV stocks?

1.Tesla’s India launch to expand battery EV market

-According to Elara Securities, whenever Tesla enters a market, it expands the battery EV penetration of that market. Even if Tesla were eventually to launch a cheaper $25,000-30,000 vehicle (its launch has been delayed globally), it would be with fewer features than current MM BEVs. 

“A customer buying an EV at ₹2 million+ over ICE is not going to buy it looking at total cost of operations but by considering, either high brand aspirational value with fewer features or a superior product in terms of features and capabilities, such as MM battery EV over other recent EV launches; thus lowering threat for M&M,” said the brokerage.

Also Read: Tesla’s market value tumbles below $1 trillion as its Europe sales slump

2.Scenario analysis of Tesla’s India market share

-Tesla prices in India are likely to be ~4x+ average selling prices of vehicles currently and ~2x over the next five years if the Model 2 is launched. 

“If we were to assume a 10-15 per cent market share in battery EV in India by FY30E, Tesla would garner a mere ~1.5-2 per cent share of PV for 15 per cent battery EV penetration in base case and 3.0-4.5 per cent for ~30 per cent EV penetration in a bull case,” said Jay Kale, CFA, Auto & Ancillaries, Elara Sec.

3.Tesla’s entry to help EV penetration in India

Despite Chinese players selling EVs before Tesla, the perception was more commercial than aspirational. The real shift happened when Tesla opened its Giga Factory in Shanghai, and since then, EV penetration took off in China. 

It was Tesla that was the first EV OEM globally to successfully generate buzz about EVs, positioning these as aspirational products, which started attracting customers. According to the brokerage, Tesla was offering a superior software experience, which was emphasized by Chinese OEMs. 

Also Read: Elon Musk’s DOGE adventure leads to knotty accounting question for Tesla

“For consumers to shift to EVs, the aspirational angle needs to be there, which Tesla was able to offer. We see this true for other markets, including India,” said analysts. Tesla sets up its own super charging network wherever it goes. According to the brokerage, it could ease the charging issues faced by EVs in India, if the OEMs tie-up with Tesla super charger network .

Tesla’s India launch: Which EV stock should you buy?

Elara Securities has picked M&M and upgraded its rating on the stock to ‘Buy’ from ‘accumulate’. The brokerage eyes a potential upside of 37 per cent on the M&M stock from current levels at a target price (TP) of ₹3,654.

Valuation-Revise to Buy with an unchanged TP of ₹3,654

“Given 15 per cent stock price reaction in two weeks, we revise to Buy from Accumulate with an unchanged SOTP-based TP of ₹3,654. The stock is trading at ~11.9x FY27E EV/ EBITDA, cheaper than Maruti Suzuki’s 12.5x. Failure of EV launches and tractor downcycle are key risks to our call,” said Elara Securities.

Also Read: M&M stock is in top gear. Where will it be in three years?

M&M reported a decent rise in its consolidated net profit and revenue for the December quarter of the current financial year (Q3FY25). The auto major reported a consolidated profit of ₹3,180.58 crore, up 19.64 per cent year-on-year (YoY) from ₹2,658.40 crore reported in the same quarter last year. 

Revenue from operations rose 17.74 per cent YoY to ₹41,464.98 crore in Q3FY25 from ₹35,218.32 crore in Q3FY24. M&M said its auto and farm segments continue to deliver on growth and margins, with profits rising 16 per cent. Financial services assets under management (AUM) grew at 19 per cent. 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.

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