Tesla making headway to establish supply chain ecosystem in India

Tesla is exploring possibilities of bringing its auto parts and electronics chain to India, in this regard, the company has held discussions with union government officials and talked about getting incentives and tax breaks in the process, said people with knowledge of the matter.

This development points towards the renewed interest of the EV maker in India after Prime Minister Narendra Modi meets with the company’s chief executive Elon Musk during his trip to the US last month.

Tesla is showing interest in bringing its supply chain ecosystem to India, even as the government has asked the company to evaluate the existing auto components supply chain in the country.

A senior government official on the promise of anonymity said, “We asked them about their specific needs and also urged them to consider sourcing their needs from the Indian ecosystem. But these companies have a well-oiled system of their suppliers. These are initial talks so we are hopeful of making some headway.”

During the meeting, the Tesla US and Tesla India executives discussed the structure of incentives the company and its partners are likely to receive to bring their manufacturing unit to India along with the supportive ecosystem. They also sought the additional details of incentives and tax breaks that could be made available to the company, people aware of the matter said.

In addition to holding meetings with the government, the US-based EV maker also met with industry executives at a Society of Indian Automobile Manufacturers (SIAM) meeting recently held in the capital. While Tesla said it would want to bring its suppliers to India, the industry body put forth the side for Indian component manufacturers and said the country has several mature and well-established auto players. However, Tesla maintaining its “all in-house stance”, highlighted that it relies on a certain level of quality standards that can only be replicated with its established partners.

As per experts, Tesla-like other multinational companies could be exploring a ‘China plus one’ strategy, which includes diversifying to India.

“For Tesla to serve their longer-term growth goals, they need to serve all markets. The challenges in China have reinvigorated the interest of Tesla in solving all problems to be in the Indian market. Tesla needs India,” Craig Irwin, managing director, Roth Capital Partners, said.

Welcoming Tesla to India

In the past, the governments stranded with the company had halted the debut plans of Tesla in mid-2022. Earlier, the union government had conclusively turned down the company’s demand for import duty cuts, which led to the shelving of Tesla’s plan to enter the Indian market.

However, the intentions of the company to enter the Indian sub-continent were made clear after Tesla CEO Elon Musk in June this year stated, the company will be in India “as soon as humanly possible”.

The meeting of the Company CEO with PM Modi, during his state visit to the US, also indicated that the standoff between the government and Tesla might be a thing of the past.

The Indian government had invited Musk to explore investment opportunities in electric mobility and the commercial space sector. Musk, on his part, said he was “trying to figure out the right timing” to make that happen. The Modi-Musk meeting and the flurry of activity by the leadership in India has given the experts a hopeful eye of Tesla’s larger plans for India.

While Tesla is looking to enter India, its biggest challenge for India will be infrastructure, both in terms of manufacturing and serving a manufacturing facility as well as the infrastructure for adoption.

“Technology in India is world-class. The intellectual economy and technological footprint are there. What India doesn’t have is a critical mass-serving industry. Inviting Tesla into India will rapidly build that critical mass,” said Irwin.

Tesla, which is more of a technology company than an automobile manufacturer, is also gauging the readiness of the electronics ecosystem infrastructure, said people aware of the matter.

As per experts, the EV manufacturer has a healthy mix of in-house and bought-in technologies, which it will use to its advantage when entering new markets, but it will also depend on new domestic suppliers for less complex auto parts.

The company cannot manufacture a car by importing the components entirely, it will have to depend on suppliers who can supply them locally over importing all components from another country. However, certain core technologies that Tesla brings into the company will use their well-established partners.

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