Tesla Approaching Agreement with India for Car Exports and $2 Billion Plant

22 Nov, 2023

Tesla Approaching Agreement with India for Car Exports and $2 Billion Plant

India and Tesla Inc. are nearing an agreement to allow the US automaker to export electric cars to the country from next year. Discussions suggest the possibility of establishing a factory within two years, according to sources familiar with India's government plans.

An official announcement may be on the horizon, possibly during the Vibrant Gujarat Global Summit in January, as hinted by insiders. The states of Gujarat, Maharashtra, and Tamil Nadu are potential locations for the Tesla plant due to their existing robust ecosystems for electric vehicles and exports.

Sources reveal that Tesla plans to initially invest around $2 billion in the plant, with potential plans to ramp up auto parts purchases from India to approximately $15 billion. Additionally, the company aims to produce batteries locally in India to reduce costs.

However, these plans remain tentative as no final decisions have been made, leaving room for potential alterations. Elon Musk, CEO of Tesla, previously expressed intentions for a "significant investment" in India and mentioned plans to visit in 2024.

Efforts to reach out for comments from relevant government bodies, including the Ministry of Heavy Industries, Ministry of Finance, Ministry of Commerce and Industry, and Tesla, yielded no response.

Entering India, the world's most populous nation with a growing demand for electric vehicles among the aspiring middle class, could significantly benefit Tesla. India's government has been actively promoting domestic EV manufacturing to expedite the adoption of cleaner transportation methods.

Despite these initiatives, India's EV market has been slow to take off, accounting for a mere 1.3% of total passenger vehicle sales last year, largely due to concerns over high upfront costs and inadequate charging infrastructure.

Tesla faces high import tariffs in India, prompting the exploration of local manufacturing. It's anticipated that when Tesla's locally made cars hit the market, they could be priced as low as $20,000, as suggested by some sources.

Trade Minister Piyush Goyal, after visiting Tesla's Fremont plant, indicated Tesla's intention to significantly increase auto parts purchases from India. Last year, Tesla procured parts worth $1 billion from India, and the company is planning to nearly double that figure to $1.9 billion this year.

The dialogue between Tesla and India resumed in May after a year-long deadlock. However, challenges remain, including India's high import taxes and disagreements over EV policies. India is reportedly contemplating reducing import taxes for international EV manufacturers for a five-year period if they commit to establishing local manufacturing units.