Introduction
The situation around electric carmaker Tesla’s entry into the Indian market is complex, with multiple factors influencing its decision, writes Chandan Basu Mallik
It is no secret that Austin, Texas, US-based Tesla has been toying with selling EVs in India for the last couple of years. Businessman, entrepreneur, and the world’s richest person according to Forbes real-time list 2025, Elon Musk prefers to do business in countries that can offer lower costs and a business-friendly environment. Although Tesla has not officially sold any of its cars in India till now (Feb 2025), The company sources parts worth billions of dollars annually from India as it considers the country a high-quality component import alternative to China despite a slight cost disadvantage compared to the latter.
After years of engagement between Tesla and the Indian government, it became apparent that the company was hesitant to enter the market due to concerns over high import duties. However, the Government of India recently reduced the customs duty on luxury cars, dropping the tax from 110 to 70 per cent for vehicles priced over $40,000 (approximately Rs 35 lakh). Setting up an EV car factory in India can cost over Rs 3,000 CR to set up, and such a commitment and Musk has not officially committed anything firm despite high-level meetings with Indian government officials and decision-makers.
Key Takeaways
- Tesla to begin selling EVs in India as early as April 2025
- EVs will be imported through the CBU route
- Delhi and Mumbai will be the first two cities for retail operations
- Hiring of front and back-end staff has begun
Prominent Twist in the tail
It is not surprising that Musk, who is seen as having a no-nonsense, direct, “get shit done” persona, wants to be 100% sure about India’s market potential after meeting Prime Minister Modi in Washington in mid-February 2025 and has actioned some notable decisions in this respect.
Less than a week after Musk met with Modi in Washington, Tesla released a list of potential technical hires for India in a job portal. According to the market grapevine, the EV maker will officially begin its retail business with two outlets in Delhi and Mumbai as early as April 2025. The search for a suitable retail outlet location has been ongoing for a year or more and is expected to be fast-tracked to meet the marketing deadlines. According to some media reports, the locations shortlisted are Aerocity in Delhi and BKC in Mumbai.
US President Donald Trump has also commented about Tesla’s potential factory in India. Trump’s observations highlight the ongoing tension between trade policies and the interests of businesses operating across borders. Trump’s statement about the potential “unfairness” of Tesla circumventing India’s tariffs likely stems from concerns about trade imbalances and fairness in the global market and is significant at this juncture.
Tesla in India: What will the retail model be?
While it is too early to speculate about a full-fledged Tesla manufacturing or CKD assembly unit in India, globally, Tesla’s business model focuses on direct company sales. The American EV brand has combined many of its sales centres with service centres, including charging stations. Tesla has 1,359 locations around the world as of the end of 2024. The logic is that such a model allows Tesla more control over pricing, customer service, and the overall buying experience. Thus, the same practice is expected to be followed for its maiden sites – Delhi and Mumbai, respectively, to begin with.
Tesla’s Gigafactory also makes RHD models, most likely to be imported from that facility. In fact, several Model Ys have been spotted testing in India since 2022. Initially, the cars will be imported as CBU units until there are enough volumes to justify further investment in a possible assembly plant in this country. Tesla’s core product offering globally includes a range of models, from the affordable Model 3 to the premium Model S and Model X. Starting prices are expected to be $25,000 onwards.
Manufacturing Tesla in India
For that to happen, factory premises and other infrastructure will be required in a geographically advantageous site with access to ports, transportation, and a strong vendor base. Like most foreign companies operating in India, a local partner will likely be an equity shareholder/investor.
One significant advantage that Tesla already has in India is its strong components supplier base from where it sources finished components. Samvardhana Motherson International, Suprajit Engineering, Sona BLQ Precision Forgings, Varroc Engineering, and Bosch Ltd. Additionally, Hindalco Industries, Goodluck India, and Valiant Communication are also among Tesla’s supplier network from India.
In 2023, Tesla bought $1 billion of components from Indian suppliers and aimed to generate business worth $1.7 billion and $1.9 billion from India this year.
Assuming that if Tesla were to build a factory in India, the decision would be seen as a strategic move to reduce costs and make their vehicles more affordable in the Indian market.
The cost of setting up a car factory in India can vary depending on various factors, such as the scale of the operation, the type of cars being produced, the location of the factory, and the level of automation. Ballpark estimates suggest construction costs can range from ₹100 crore to ₹500 crore or more, based on the size and complexity of the factory. According to available data, the investment can be significantly higher for EV makers or those using advanced automation and R&D, up to ₹3,000 crore or more (around $360 million). Add to that R&D cost (R&D costs can range from ₹50 crores to ₹200 crores annually, depending on the scope and type of vehicle technology being developed), regulatory costs (can range from ₹10 crores to ₹50 crores), depending on the complexity of the legal and environmental compliance.
The Indian government has firmly committed to promoting electric vehicles through various initiatives, including the FAME II scheme, until April 2024. However, this policy has not been updated, so any new EV player, including Tesla, must wait and watch for now.
Domestic sales & export business
It is too early to speculate about numbers for India at the time of writing, but there could also be the possibility of exports. Analysts think exports from India also raise concerns about the competitive dynamics between the US and India, particularly regarding trade practices the Trump administration has been critical of. Ultimately, companies like Tesla must strike between pursuing growth opportunities in global markets and navigating complex trade relations while understanding what must be done to not upset the delicate balance. And since India has preferential access, economic cooperation, and FTA with more than fifty countries, export opportunities could be the icing on the cake for the brand.
India’s EV market is Growing Fast
In 2024, India’s electric vehicle (EV) market experienced significant growth, with total sales surpassing 2 million units, marking a 24% increase from the previous year.
Passenger cars had a smaller share than 2Ws or 3Ws; this segment showed steady progress, with 99,848 units sold, marking a 6.9% year-on-year growth. Electric cars made up around 5% of total EV sales in India.
While the Indian market lags China in EV sales, its potential is notable, especially as the government has shown increasing support for EV adoption. The Indian federal government wants to increase it to 30% by 2030.
For 2025 and onwards, several automakers operating in India plan to launch nearly a dozen new electric car models this year, many in the premium market, with longer driving ranges and faster charging times.
Tesla competitors in India
The EV market in India is evolving, and both Indian and domestic players are competing in various segments, from premium to affordable mass-market models. While Tesla remains a leader in the EV space in most countries, brands like BYD, Nio, BMW, Mercedes-Benz, Hyundai/Kia, VAG, GM, and Ford are among its competitors, and for India, there will be rivals like Tata Motors and Mahindra & Mahindra to contend with in fact. Early mover advantage helped Tata Motors become India’s most prominent electric carmaker over the last few years, followed by fast-moving Mahindra.
Tesla factory in India- The Possibilities
Most business-friendly and progressive states would love to have Tesla in their territory. The national government is in touch with several global EV manufacturers, offering incentives to set up their EV production facilities here. This has attracted companies like Tesla, BYD, Mahindra Electric, and Tata Motors to scale up their production in India. A special focus is given to attracting global EV giants to establish local production facilities, reducing the overall cost of EVs and enhancing India’s manufacturing capabilities.
Three states, Gujarat, Maharashtra, and Tamil Nadu, could be among the front runners, and here is why.
Gujarat: Gujarat is a key car manufacturing hub in India, attracting several major automotive companies due to its favourable policies, infrastructure, strategic location, and well-developed infrastructure. Gujarat’s location on the western coast of India provides easy access to essential ports like Mundra Port and Kandla Port, facilitating the export of vehicles and components to export/global markets. Brands like Maruti Suzuki, Honda, Tata Motors, and Ford are in this state.
Maharashtra: Maharashtra is one of India’s key automotive manufacturing hubs, playing a central role in the country’s automobile production landscape. The state already has numerous global and domestic automakers. Maharashtra also focuses on electric vehicle production and charging infrastructure. Major car manufacturers like Tata Motors and Mahindra Electric have established significant EV production capacities in the state besides grooming start-ups.
Tamil Nadu: Tamil Nadu has emerged as a crucial hub for electric vehicle (EV) manufacturing and adoption in India. The state is actively working on developing a dedicated EV corridor to promote sustainable transportation and green mobility. The Tamil Nadu EV corridor is a planned integration of infrastructure, policies, and manufacturing ecosystems that support the state’s widespread adoption and use of electric vehicles.
Benefits of making in India
India has introduced several policies to attract investments in the electric vehicle (EV) sector, aiming to boost domestic manufacturing and adoption. Automakers are required to invest at least $500 million in establishing EV manufacturing facilities in India. Companies meeting this investment criterion can import up to 8,000 EVs annually, totaling 40,000 units. This import duty reduction applies to vehicles priced at $35,000 and above.
Weighing options
Due to several factors, entering India’s evolving EV four-wheeler market can be challenging and expensive. Before committing, Elon Musk’s Tesla seems to be weighing various options, such as whether direct investment (setting up a plant), joint ventures, partnerships with local companies, or importing and selling through distributors would be profitable or not, given US domestic policy compulsions.
Way forward -Will they or will not they?
This has been speculated about Elon Musk’s Tesla foray in India for several years. Despite initial hesitation over high import taxes, India’s recent decision to lower customs duties has created a favorable pitch for Tesla, aligning with the growing demand for EVs in the country.
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About the author:
British-Indian Chandan Basu Mallik has been an automotive petrol head and journalist/editor for over thirty years. He has worked in the UK and the Middle East and is currently in India. You can learn more about his work on his LinkedIn profile: https://www.linkedin.com/in/chandan-mallik-34aa47320/. You can write to Chandan at theprimeavenuekol@gmail.com