India is reportedly nearing an agreement with Tesla that would allow the US automaker to ship its electric cars to the country starting next year and establish a factory within two years. The announcement could be made at the Vibrant Gujarat Global Summit in January. Gujarat, Maharashtra, and Tamil Nadu are being considered as potential locations for the factory due to their existing ecosystems for electric vehicles and exports. Tesla would initially invest around $2 billion in the plant and increase purchases of auto parts from India to as much as $15 billion. The company would also aim to produce batteries in India to reduce costs. However, no final decision has been made, and the plans could change.
Entering the Indian market, where demand for electric vehicles is growing among the middle class, would be a significant opportunity for Tesla, which currently has factories in the US, China, and Germany. The Indian government has been promoting domestic manufacturing of EVs and encouraging the adoption of cleaner transport. However, the EV market in India has not yet taken off, with battery-powered cars accounting for just 1.3% of total passenger vehicle sales last year. High upfront costs and a lack of charging infrastructure have deterred buyers from switching to electric cars.
Because of the high taxes, Tesla does not import automobiles directly into India. When Tesla vehicles manufactured locally hit the market, they might only cost $20,000. After touring Tesla's California facility, Trade Minister Piyush Goyal announced that the company intends to almost treble its annual spending on car parts from India to $1.9 billion. The business imported $1 billion worth of parts from India last year.
Tesla and India resumed discussions in May after a year-long impasse. Tesla CEO Elon Musk has criticised India's high import taxes and EV policies, while India has advised Tesla not to sell cars in the country that are made in China. India is now considering reducing import taxes for international EV manufacturers for five years if they commit to establishing local factories.
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