Tesla's India Venture: Is There Substance or Just Industry Buzz?

The prolonged negotiations between Tesla and the Indian government have been a subject of keen interest, as both parties navigate discussions to pave the way for the electric vehicle (EV) giant's entry into the Indian market.?

1. Factory Plans and Vehicle Pricing:

Tesla is contemplating the establishment of an assembly plant in India which can be running in as soon as two years, focusing on producing a low-cost EV with an ambitious target price of Rs. 20 Lakh. It aims to build a low-cost mass-market car to capture the fast growing market of developing nations. This pricing strategy positions Tesla's offering as 25% cheaper than its current lowest-priced Model 3 sedan. However, the starting price of Rs. 20 Lakhs raises eyebrows, placing it significantly above the price point of the popular Tata Nexon EV.

2. Investment and Import Duties:

In pursuit of its manufacturing ambitions in India, Tesla has engaged in talks regarding a substantial investment of up to $2 billion. It already has gigafactories in California, Nevada, Germany, Shanghai, Texas and New York. In 2023, it approved the opening of a factory in Mexico and will invest $10 Billion. If it announces a plan to open a factory in India, it will herald the country into a well established and refined supply chain of the biggest car company in the world. It’s worth noting that Tesla is looking at an investment of $2 Billion in India and is seeking concessional import duties ranging from 15% to 20% on vehicle imports for at least the initial two years. The Indian government, in response, is actively crafting policies to reduce import taxes on EVs, potentially dropping from 100% to as low as 15% for manufacturers committing to substantial investments and local production.?

3. Talks with Indian Government:

The Centre has made it clear that any concessions and duty reliefs would apply to all automobile manufacturers, not just Tesla.? Recent comments from Mukesh Aghi (Chairman & President, US-India Strategic Partnership Forum) reveal that Tesla's entry discussions are currently on hold as the company awaits India's EV policy. The focus is not solely on batteries but also on building a robust chip manufacturing ecosystem, essential for Tesla's production plans.?

4. Immense Benefits for India:

Tesla's potential entry into India promises significant advancements in the manufacturing of chips. Government officials emphasize Tesla's focus on building a robust chip manufacturing ecosystem in addition to electric vehicle production. With Tesla cars requiring around 2,000 chips each, the establishment of a local chip manufacturing ecosystem aligns with India's aspirations for technological self-reliance. This move not only positions India as a key player in semiconductor manufacturing but also stimulates innovation and job creation in the high-tech sector. This move also aims to source components valued between $1.7 billion and $1.9 billion, marking a significant increase from the $1 billion worth of components procured in the preceding year.

India’s Lithium Mine - A Golden Goose?

The year-long hiatus in talks between the Indian government and Tesla, followed by the resumption in May 2023, adds an intriguing layer to the discussions surrounding Tesla's entry into the Indian electric vehicle (EV) market. Notably, in February 2023, India uncovered lithium reserves in Jammu & Kashmir, a development that holds substantial significance given Elon Musk's earlier remarks on lithium prices being a critical factor beyond Tesla's control. This newfound discovery of lithium resources raises the possibility of negotiations involving a potential lithium mining contract between the Government of India and Tesla. While not explicitly confirmed, the timing of these events hints at a strategic connection, suggesting that Tesla may be actively exploring the opportunity to secure lithium mining rights as part of its comprehensive strategy to establish a foothold in the Indian EV market.?

These ongoing negotiations underscore Tesla's determination to establish a robust presence in the Indian market, emphasizing its commitment to affordable EVs and the potential for significant investment. Simultaneously, the Indian government is actively working to create an environment conducive to Tesla's endeavors, striking a delicate balance between attracting foreign investment and addressing concerns within the domestic automotive sector.