Tesla Turns to India: A Strategic Shift Amidst Volatile Supply Chain Dynamics

In a pivotal shift within global supply chains, Tesla has made a strategic move to diversify its sourcing from China and has selected an Indian auto parts manufacturer as its preferred supplier. Considering that Tesla is reportedly willing to pay a premium for components sourced from India, its decision is a crucial one. Tesla’s procurement of parts from India includes small plastic parts, castings, complex differential systems used in transmission, and wheel hubs.

Moreover, this shift also aligns Tesla with the China +1 strategy being followed worldwide. It is a concept aimed at reducing dependence on a single source to mitigate supply chain risks amid various global disruptions.

The increased collaboration with Indian suppliers, including major players like Sona Comstar, Graziano Trasmissioni India Pvt. Ltd, Tata AutoComp Systems Ltd, and others underscores Tesla’s commitment to restoring balance in its supply chain.

Sources say that among about 30 suppliers that exported auto parts worth USD 135-150 million to Tesla in the fiscal year 2022-23, many were Indian. The contribution to Tesla’s supply chain is not limited to primary suppliers. Tier-2 and Tier-3 suppliers, who provide parts to direct suppliers, are also playing a significant role. In fact, recently, Commerce and Industry Minister Piyush Goyal announced that Tesla sourced nearly USD 1 billion worth of auto parts from India in 2022.

Also, Goyal recently visited the Tesla factory, which coincided with the Indian government’s consideration of a new national electric vehicle (EV) policy. This policy might reduce import duties on EVs, provided international car manufacturers like Tesla agree to establish local production in India. Tesla is focusing on capturing the mass-premium passenger EV market in India.

This sourcing trend aligns with the Indian government’s ambition to position the country as a global hub for green mobility solutions. The proposed national EV policy, including potential reductions in import duties, further incentivizes foreign EV makers like Tesla to expand their presence in the Indian market.

As Tesla focuses on capturing the mass-premium passenger EV market in India, its collaboration with Indian suppliers becomes a strategic move not only for the company but also in the broader context of global supply chain dynamics.