Tesla in talks with Reliance to setup first EV plant in India

Tesla’s India ride: Tesla has intensified efforts to enter the Indian Electric Vehicle market to encash the updated EV policy that accounts for lower import taxes, exploring a suitable location to establish the company’s first plant in the country. 

Tesla may also be scouting for a local partner to set up its operations in India. According to sources quoted by Hindu BusinessLine, the US electric vehicles major is in talks with Reliance Industries for a possible joint venture to build the manufacturing facility in the country.

Recently, while talking to Nicolai Tangen, CEO at Norges Bank Investment Management in an X Spaces session, Elon Musk, CEO, Tesla said, "India is now the most populous country in the world, based on population. India should have electric cars just like every other country has electric cars. It's a natural progression to provide Tesla electric vehicles in India." 

Musk also reiterated that the future of transportation belongs to EVs. Musk said, "All vehicles will go electric and it is just a matter of time."

Search for ideal location

According to reports, Tesla is sending a team of experts to search for a location to set up a $2-$3 billion EV plant in India. The company is scouting for land in  Gujarat, Maharashtra and Tamil Nadu to start its EV making plant and develop them as export hubs.

India’s EV policy has also come at a time when the government is trying to lure in foreign investments to boost local EV production and not lose the potential manufacturing edge to other Asian peers. 

Apart from that, Industries and IT Minister of Telangana, D Sridhar Babu had previously stated, “We have been making all-out efforts to bring Tesla to our State.” MB Patil, Karnataka’s Commerce, Industries and Infrastructure Minister has also tweeted that Karnataka is the ideal destination for Tesla's expansion in India, inviting the EV giant to establish its manufacturing facility in the state. 

The proposed plant, with an estimated investment ranging from $2 billion to $3 billion, to cater to both domestic and international demand for Tesla's electric vehicles.

India’s EV policy

In March 2024, the Government of India released a new EV policy according to which import taxes on specific EVs will be reduced for companies investing over $500 million and setting up manufacturing facilities within three years. The scheme requires a minimum investment of Rs 4,150 crore ($500 million), with no upper limit.

For EVs with a minimum Cost, Insurance, and Freight (CIF) value of $35,000, a 15 per cent customs duty will apply for five years, contingent upon the manufacturer establishing manufacturing facilities in India within three years. The duty foregone will be capped at the investment made or Rs 6,484 crore.

If investment exceeds $800 million, a maximum of 40,000 EVs, not exceeding 8,000 per year, will be allowed. Manufacturers must establish manufacturing facilities within three years and achieve a domestic value addition of at least 50 per cent within five years, with a mandated localisation level of 25 per cent by the third year.

Tesla’s India journey so far

In 2015, Elon Musk, the CEO of Tesla, publicly expressed interest in entering the Indian market through a tweet. The announcement sparked considerable excitement and speculation within India's automotive and technology sectors. Following this, in 2016, Tesla started exploratory efforts to assess the viability of establishing a presence in India.

In 2017, Tesla formally registered a subsidiary company named 'Tesla India Motors and Energy Pvt. Ltd.' in Bengaluru. However, the subsequent years were marked by challenges and delays attributed to regulatory hurdles and concerns regarding compliance with local sourcing norms.

Elon Musk, in 2019, voiced concerns over the high import duties on EV imports in the Indian market. Musk in one of his tweets said, “I'm told import duties are extremely high (up to 100 per cent), even for electric cars. This would make our cars unaffordable."

Despite these challenges, in 2021, Union Minister Nitin Gadkari confirmed Tesla's intentions to start operations in India, initially by importing vehicles and later establishing a manufacturing facility. By 2022, reports emerged indicating that Tesla was in discussions with several Indian states, including Maharashtra, Gujarat, Andhra Pradesh, and Telangana, to setup its manufacturing plant. 

Prime Minister Narendra Modi, during his visit to the United States in 2023 also met Elon Musk. Following the meeting Musk stated,  "I can say he really wants to do the right thing for India. He wants to be open, he wants to be supportive of new companies, obviously, but at the same time, make sure it accrues to India's advantage, which is obviously that's the job I'm saying. I am a fan of Modi."

The momentum towards facilitating Tesla's entry into India gained further traction when the government announced incentives for the adoption of EVs and potentially eased some of the challenges faced by companies like Tesla in establishing a foothold in the Indian market.