Tesla sets sights on establishing supply chain in India: Report

As reported by The Economic Times, these discussions indicate a revived interest from the US-based electric vehicle manufacturer in India, which comes shortly after Prime Minister Narendra Modi’s meeting with Tesla CEO Elon Musk during his recent visit to the United States, as stated by the sources.

According to sources, Tesla has shown interest in establishing its own supply chain ecosystem in India, despite the government’s request for the company to assess the current auto components supply chain within the country.

“We asked them about their specific needs and also urged them to consider sourcing their needs from the Indian ecosystem,” said a senior government official, who did not wish to be identified. “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 meetings, executives from both Tesla in the US and Tesla India inquired about the incentives framework for the company and its partners in order to establish a manufacturing unit in India, along with the necessary supportive ecosystem, according to knowledgeable sources, ET reported.

The executives also sought further information regarding potential incentives and tax breaks that could be offered to Tesla.

ET further noted that in addition to engaging with the government, Tesla has been conducting meetings with industry executives as well. During a recent gathering organized by the Society of Indian Automobile Manufacturers (SIAM) in the capital, Tesla expressed its intention to bring its own suppliers to India.

While the industry body advocated for Indian component manufacturers, highlighting the presence of experienced and established players in the country, Tesla maintained its preference for an “all in-house” approach. The company emphasized its reliance on a specific set of quality standards that can only be replicated through its existing partners.

Experts noted that like many other multinational companies, Tesla too 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, told ET.

Elon Musk, the CEO of Tesla, expressed the company’s intention to establish a presence in India “as soon as humanly possible” in June. This statement came after a meeting between Musk and Prime Minister Narendra Modi, who was on a state visit to the United States.

The government extended an invitation to Musk to explore investment opportunities in the electric mobility and commercial space sectors. Musk, in response, mentioned that he was assessing the optimal timing for making such a move.

The dialogue was viewed as a positive and an indication that the standoff between the government and Tesla might be a thing of the past. Earlier, the union government had conclusively turned down the company’s demand for import duty cuts. The Texas-based manufacturer subsequently shelved its India debut plans in mid-2022. With the Modi-Musk meeting and the flurry of activity by the leadership in India, experts said they were hopeful of Tesla’s larger plans for India.

According to Irwin, Tesla is encountering difficulties in China due to the pressures it is exerting on local companies such as BYD. However, he cautioned that in India, the major challenge lies in infrastructure. This includes not only the infrastructure required for manufacturing and supporting a manufacturing facility but also the infrastructure needed for widespread adoption of electric vehicles.

“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 characterised by many as a technology company rather than an automobile manufacturer, is also gauging the readiness of the electronics ecosystem infrastructure, said people aware of the matter.

“While many automakers are embracing software-defined vehicles, Tesla was born with this technology, resulting in less hardware and software complexity. This means that they will require fewer components than a typical EV in India,” said Ashwin Amberkar, automotive analyst at Canalys.

Elon Musk mentioned that Tesla utilizes a balanced combination of in-house technologies and externally sourced technologies, which it intends to leverage when entering new markets.

However, the company also plans to rely on new domestic suppliers for relatively less complex auto parts, indicating its willingness to engage with local manufacturers in order to establish a robust supply chain in those markets, ET noted.

“Tesla cannot manufacture a car by importing the components entirely. They have to depend on suppliers who can supply them locally over importing all components from another country. But there are certain core technologies that Tesla brings in for which they have very well-established partners whom they will use,” said Amberkar.

Updated: 13 Jul 2023, 08:14 AM IST