Photo: Narendra Modi via Twitter
Talks about a possible Tesla gigafactory in India heated up in June after Elon Musk met the Indian prime minister Narendra Modi in New York. Musk promised Tesla would be in India "as soon as humanly possible," but producing EVs in India might be more challenging than he imagined.
Rumors about a Tesla gigafactory in India have been floating around for the past three years. In time, the two parties have developed a love-and-hate relationship, as Tesla sought tax breaks for its EVs imported into India, while the local government wouldn't budge. This has led to several rounds of discussions, but every time, they were back to square one without an agreement. Still, as the geopolitical situation changed, Tesla is now more eager to establish local production, while India is happy to assist.
Tesla's main production hub is in China, thanks to Giga Shanghai being the largest and most efficient gigafactory. But China has become a sensitive topic in the past year or so, and big companies have been trying to find alternatives. Tesla is probably doing the same, trying to hedge its position in Asia in case Shanghai becomes untenable. Even if Giga Shanghai continues to be the crown jewel that it is today, Tesla's expansion plans require new gigafactories to be built. South Asia is a vast market, and India is the perfect place to establish an EV factory.
At this stage, I can say that India and Tesla are already past the point of deciding whether there will be an Indian factory. What the two parties negotiate now are the details as a political decision has already been made. It's significant that Indian media already knows the type of car Tesla will produce locally (a $24,000 compact EV) and in what volumes (500,000 units per year for now). Panasonic, one of the most important Tesla suppliers, also negotiates with the Indian government the conditions to establish a local battery factory.
India makes a lot of sense for Tesla as a producer, thanks to the country's educated workforce and moderate wages. On the other hand, electric vehicles and the charging infrastructure are almost non-existent. Tesla will also need to create the supply chain from scratch because there's no such thing in India. That's the most significant obstacle, and it will take considerable resources to overcome.
The resources are not even the hardest thing. Tesla relies on many Chinese suppliers for components and raw materials, helping it keep costs down. They might be quick to start operations in Mexico, as Tesla insisted a couple of months ago, but going to India is much harder. India and China are rival countries that have clashed several times, so they hold a grudge against each other. China did not allow foreign companies to establish wholly-owned subsidiaries (Tesla was the first one), and India has a similar policy, at least for Chinese companies.
The matter has been discussed during recent meetings between Tesla executives and authorities in New Delhi. The Indian officials recommended that Tesla do what Apple has done: encourage its Chinese suppliers to establish joint ventures with local companies. Apple managed to create a fast-growing supply chain in India using this method. If it wants to keep its Chinese suppliers, Tesla needs to do the same.
Tesla's main production hub is in China, thanks to Giga Shanghai being the largest and most efficient gigafactory. But China has become a sensitive topic in the past year or so, and big companies have been trying to find alternatives. Tesla is probably doing the same, trying to hedge its position in Asia in case Shanghai becomes untenable. Even if Giga Shanghai continues to be the crown jewel that it is today, Tesla's expansion plans require new gigafactories to be built. South Asia is a vast market, and India is the perfect place to establish an EV factory.
At this stage, I can say that India and Tesla are already past the point of deciding whether there will be an Indian factory. What the two parties negotiate now are the details as a political decision has already been made. It's significant that Indian media already knows the type of car Tesla will produce locally (a $24,000 compact EV) and in what volumes (500,000 units per year for now). Panasonic, one of the most important Tesla suppliers, also negotiates with the Indian government the conditions to establish a local battery factory.
India makes a lot of sense for Tesla as a producer, thanks to the country's educated workforce and moderate wages. On the other hand, electric vehicles and the charging infrastructure are almost non-existent. Tesla will also need to create the supply chain from scratch because there's no such thing in India. That's the most significant obstacle, and it will take considerable resources to overcome.
The resources are not even the hardest thing. Tesla relies on many Chinese suppliers for components and raw materials, helping it keep costs down. They might be quick to start operations in Mexico, as Tesla insisted a couple of months ago, but going to India is much harder. India and China are rival countries that have clashed several times, so they hold a grudge against each other. China did not allow foreign companies to establish wholly-owned subsidiaries (Tesla was the first one), and India has a similar policy, at least for Chinese companies.
The matter has been discussed during recent meetings between Tesla executives and authorities in New Delhi. The Indian officials recommended that Tesla do what Apple has done: encourage its Chinese suppliers to establish joint ventures with local companies. Apple managed to create a fast-growing supply chain in India using this method. If it wants to keep its Chinese suppliers, Tesla needs to do the same.
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