The commerce minister said that electric vehicle maker Tesla Inc plans to nearly double India component sourcing to $1.7-$1.9 billion this year. That would be around double the auto parts worth $1 billion that Tesla bought from the country last year, Minister Piyush Goyal said at an automotive conference in New Delhi.
Local sourcing is part of Prime Minister Narendra Modi’s pitch to lure manufacturers with his “Make in India” campaign. The move also aligns with a global trend by companies to diversify their production bases away from China, where the rising labor cost is restraining growth.
Elon Musk, chief executive of Tesla, has been keen to set up a factory in the world’s largest car market for years but has yet to secure lower import duties on EVs, which he said are among the highest in the world. In May, the company reopened talks with government officials in Delhi after a year-long stand-off, but that didn’t result in a formal proposal for setting up a plant.
But the latest announcement shows that Tesla is revving up its interest in India, which has a reputation for being price-sensitive for everything from clothes to phones to cars. Analysts say that local production will allow the company to reduce its manufacturing costs and take advantage of the growing demand for EVs in the region.
India wants to boost local manufacturing of batteries, EV components, and other products to cut expensive imports and curb pollution in its major cities. The initiative is part of a global carmaker race to jump-start EV production as countries work towards cutting carbon emissions.
The move to boost sourcing from India is likely to help Tesla keep its prices competitive in the Indian market, where a lack of local alternatives has slowed the adoption of the vehicles. It is also part of a broader trend by global manufacturers to leverage India’s cheaper labor costs and reduce their exposure to rising prices in China, where many of them are sourcing components for their EVs.
The government has been trying to persuade global manufacturers to set up plants in the country, a key producer of lithium-ion batteries for EVs. It has been working on a plan to offer tax incentives to attract such investment. It also looks at imposing retaliatory measures on foreign firms that do not invest in India. However, the industry is concerned that if the incentive package does not promise to create millions of jobs, it could damage the country’s global image. The government is due to decide on the incentive package in early 2022. For now, the focus is on attracting international firms to invest in the country, with Tesla being one of them. Reuters has learned that the US-based carmaker has already approached several local vendors, including the state-owned BHEL and the country’s biggest steel maker, Tata Steel Ltd. BHEL and Tata are not commenting on the reports.
