During a two-day visit last fortnight, a senior Tesla delegation, largely from its supply chain function, met officials from the Prime Minister’s Office and the Commerce Ministry in New Delhi, as well as executives from a Mumbai EV manufacturer. Tesla’s relationship with India has been on and off for more than two years.
Following rounds of talks, letter exchanges with the government, and a slew of tweets from Musk, the Elon Musk-founded company decided to shelve its India plans in May last year after failing to persuade the government to reduce high import duties so that it could test the waters by importing completely built units (CBU) cars.
Faced with fierce opposition from Indian automakers, who argued that such a reduction would be unfair given the high localization threshold for domestic competitors, the government directed Tesla to assemble the cars in India rather than import them from China, as other global automakers such as Hyundai and Mercedes Benz were doing. In addition, the EV manufacturer was unable to obtain concessions for single-brand Tesla showrooms.
This time, numerous sources familiar with the conversations said that rather than CBU duty reductions, the multinational headquartered in Austin, Texas, is asking for long-term tax stability and clarity before investing in a CKD assembly factory. The charge on a CKD assembly is only 10%, as opposed to 70% on the cost, insurance, and freight (cif) value of an imported automobile less than USD 40,000 and 100% for imported autos exceeding USD 40,000. It is also considering expanding its component supply chain from India and maybe launching a lithium-ion battery facility.
The India reassessment is the result of Tesla’s plans to produce 20 million electric vehicles per year by 2030, a massive increase from the 1.3 million sold last year. Musk has also indicated that in order to achieve this target, 10 to a dozen gigafactories will be needed around the world, up from just five in the United States, China, and Germany.
Tesla, like other international corporations, is attempting to diversify its reliance on China for both manufacturing and sales. Last year, half of its vehicles were produced in its Shanghai plant, with China accounting for one-third of total sales.
Tesla’s search for additional assembly locations is also motivated by the fact that it is preparing a tiny EV priced at half the price of its best-selling Model 3, or under USD 25,000. This car’s market would be in Asia and Latin America, where governments are pushing for increased electrification.
Tesla may take advantage of India’s enticing huge component base to further localise and reduce prices. According to a car industry expert who has run South Korean auto titans, creating an assembly facility would not cost more than USD 100 million, and they can simply obtain global supply chain tyres, seats and other components from India, where it is already a global player. Sona differential gears are already used throughout the world, while other components are sourced from Sandhaar’s Mexico plant.
However, India has competition, with South Korea leading the way. It has a sizable local market, is moving towards EVs, has an FTA with the US, and has access to rapidly rising East Asian markets. South Korean President Yoon Suk Yeol met Musk in Washington in April at the latter’s desire to establish a gigafact01Y in the country, and the Korean government has stated its intention to provide Tesla significant concessions.
By partnering with component manufacturers and making India a hub for its global supply chain, Tesla may also negotiate with the government for the production linked incentive (PLI) scheme for electric vehicles and components. However, the government has asked the Tesla team to speak with successful global businesses who are transforming India into a manufacturing hub. It will also have to rebuild its India staff, as most of those involved in the previous project have left or relocated to the US.
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