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India Resorts to Carrot-and-Stick Tactics to Lure Tesla Into the Country

Tesla is having a hard time cracking the Indian market, given their made-in-China vehicles are facing steep import tariffs in the country. India and China have a long spat history, hence Tesla’s problems as India refuses to accept vehicles built in the rival country. The Indian government has proposed Tesla open a factory in the country instead, offering important incentives.
Tesla Giga Berlin's production line 7 photos
India resorts to carrot-and-stick tactics to lure Tesla into the countryIndia resorts to carrot-and-stick tactics to lure Tesla into the countryTesla Gigafactory BerlinTesla Gigafactory BerlinTesla Gigafactory BerlinTesla Gigafactory Berlin
Tesla and the Indian government got into a chicken-vs-egg conundrum, either part refusing to budge. For one thing, Tesla cannot sell its made-in-China vehicles in India because of the 110% tariffs. The Indian government demands Tesla build the vehicles in the country or purchase $500 million worth of auto components from India to drop the heavy tariffs. For another, Tesla does not want to commit to an Indian factory before gauging the market prospect for its vehicles, and for that, it needs lower tariffs.

Tesla has a unique manufacturing model in that the supply chains are as short as possible. For its main production hub in Shanghai, the American carmaker relies on a local supply chain which helped decrease costs and increase reliability. It’s far-fetched to think Tesla would commit to importing car parts from India and mess with all this Swiss-watch-like precision in its Chinese operation. This will likely be the case for Giga Berlin as well when the operations will enter the mass-production phase.

To be sure, the Indian government did offer Tesla incentives to build a local factory. “If Tesla manufactures its electric vehicles in India then they will also get benefits,” India’s Union Road Transport and Highways Minister Nitin Gadkari said on May 2. This mirrors another statement from a week before. “If Elon Musk is ready to manufacture in India then there is no problem. Come to India, start manufacturing, India is a large market, they can export from India,” Gadkari said on April 26, according to The Hindu.

But to build a car factory in India, Tesla first needs to know that there is a market for the vehicles produced locally. Right now, this is impossible to gauge, since the 110% tariffs make Tesla vehicles unlikely to sell in India. Exports from India are also unlikely because Tesla has made Shanghai his main production hub and intends to extend the Gigafactory to quadruple its capacity in the next couple of years. There might not be enough EV market for another Tesla gigafactory in Asia.

 
 
 
 
 

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