The airwaves are abuzz once again with the news of EV giant Tesla entering India, after two prior failed attempts. Following Tesla CEO Elon Musk’s recent meeting with Prime Minister Narendra Modi, Tesla has reportedly begun producing vehicles that it intends to import to the India market, while also scouting for potential locations to set-up a factory, although neither Musk nor any other sources have confirmed this.
In March 2024, the Indian government introduced a policy permitting EV manufacturers to import fully assembled electric vehicles (Completely Built Units or CBUs) at a reduced customs duty rate of 15%, applicable for a period of five years. Under this policy, a foreign EV maker can import up to 40,000 units at a lower custom duty rate of 15%, with a maximum import limit of 8,000 units per year. The deal works only if the manufacturer invests $500 million dollars in India, which would involve setting-up a factory.
Although Tesla’s initial plans will involve importing cars from its Berlin plant, the greater benefit lies in Tesla’s ability to enrich India’s EV supply chain. Thus far, Tesla has been using India as a components stronghold, sourcing nearly $1 billion in auto components from India in 2023. Components such as plastic parts, casting, differential hubs etc. Given that US President Donald Trump has expressed his disapproval over Musk setting-up a factory in India, it’s more likely that Musk will continue to mine India for components, while utilising the country’s five-year policy to gauge consumer interest while also observing if India can effectively serve as an export-hub for Tesla’s yet-to-be-manufactured low-cost vehicle.
However, the question arises as to why Musk has decided to expedite Tesla’s long-dormant India operations. Despite a favourable policy environment which allowed Tesla to import cars at lowered custom duty, Musk’s plans to come to India were cancelled at the last minute, earlier last year with no indication of resuming talks. Now however, Tesla has listed 13 new positions across Delhi and Mumbai. What are the forces that could have possibly precipitated the circumstances around Tesla’s impending arrival in India?
Tesla sales falling globally
One of the key reasons behind Musk’s turnabout when it comes to the Indian EV market is that Tesla is witnessing a major sales slowdown, not just in the US, which continues to be its largest market, but also in countries like UK, Germany and France. Sales in the latter two countries were hit particularly hard. In January 2025, Tesla saw a 59.5 % sales decline in Germany and an even higher 63.3 % drop in France. Earlier this month Tesla shares dropped by 11% and it appears that its other key market China, Tesla’s largest market outside the US, saw an 11.5% year-on-year decline in sales in January 2025.
The reasons are manifold and not limited to Musk’s politics alone. EVs are facing a global slowdown in sales, and Tesla’s aging car line-up hasn’t helped it beat its competitors. Partly, this is due to the fact that Tesla’s attention has been more focused on reshaping itself as a robotics and AI-driven company that makes cars.
Models like the Cybertruck, which initially sold in vast quantities in the US, have not proven to have long-term durability. The Cybertruck has also faced major regulatory hurdles in markets like the UK, Japan, and EU region owing to its shape and size and its failure to comply with road safety standards. That, coupled with other reliability issues consistent with Tesla cars and the mounting competition from manufacturers like BYD, Volkswagen, and Hyundai, has ensured that Tesla no longer possesses the edge it once did.
If Tesla is to indeed enter the market by the second quarter of this year, it will be doing so at a time when its brand cache is at an all-time low, with competitors matching steps with the brand and consumers boycotting Musk over his politics. At present, India remains the market where Tesla’s halo effect is the strongest. While there’s no doubt that there will be pent-up demand for the brand Tesla, it remains to be seen if it will be at all significant in a niche market like India, where even a base Tesla Model 3 will qualify as a luxury vehicle.
Even with the import duty set to 15%, an entry-level Tesla Model 3 will cost roughly ₹44.2 lakh (ex-showroom). Without the promise of local manufacturing, at a reduced import duty of 70%, Tesla will have far fewer takers despite strong brand cache in India, and pent-up demand as the Model 3 will cost upwards of ₹65 lakh. Brand cache notwithstanding, competitors like Hyundai, Kia, BMW, Audi and Mercedes-Benz can offer far more robustly built products at that price point. And given regulations, Tesla’s self-driving tech will not serve as an advantage over the competition.
Strengthening the supply chain
On the whole Tesla’s entry into India is a good thing for the entire ecosystem. Reports suggest that several suppliers are already scouting for locations in Gujarat and Tamil Nadu. Given that Tesla’s arrival will attract more high-end component players from Europe, means that the supply chain for EVs will be more robust than ever. In any case, Musk must comply with the policy framework which enables lower duty imports only via the promise of local manufacturing and 50% local component sourcing.
Tesla may not have outrightly announced any plans to set up manufacturing, but it does intend to embed itself more deeply into the Indian market and make it a more integral part of its global operations. If not through outright sales, Tesla’s inadvertent strengthening of the EV supply chain can accelerate EV adoption in India.
Tesla models still in the pipeline
Let’s face it, this isn’t the first time Musk has announced something and not followed through. The Cybertruck’s launch saw significant delays, and the highly anticipated second-generation Tesla Roadster has yet to make an appearance. Even last year’s Cybercab unveiling is still some time away from being production-ready, and Musk’s claims of making fully autonomous tech road legal in the US are far from reliable.
Even if Musk uses his influence in the current US administration to bulldoze regulatory hurdles, it will be a while before a Model 2-level, sub ₹21 lakh product will be production ready. While the average gestation period for a Tesla model from conception to production has been over 3 years, in recent times Tesla has taken much longer to bring its products out. Even Robin Zeng, CEO of Chinese battery giant and Tesla battery supplier CATL, stated that while Musk was on the right track with the Cybercab, it would be foolish to believe that it will be production-ready by 2026. For a Model 2 vehicle, Tesla would need to manufacture at an unprecedented scale, and that’s likely to take a lot of time.
Even existing models like the Model Y have seen extensive delivery delays owing to supply chain issues (in China) and delayed deliveries in markets like Europe.
That remains the big question. Although Tesla’s job listings for India show an intent to establish a strong customer service network in India, India’s demand for luxury EVs remains remarkably low for the world’s third-largest car market. From January to September 2024, Mercedes-Benz India – the long-standing market leader in the luxury space only sold 800 EV units out of a total of over 14,000 cars sold.
Even though the demand for luxury EVs is rising in India, Tesla will fall considerably short of the 8000-unit cap when it comes to EV sales. Furthermore, there has been no talk of establishing a country-wide Supercharger network – something that is a lifeline for all Tesla buyers and a major reason behind Tesla’s global success. In order to truly accelerate EV adoption in India, Tesla would have to help set up “Superchargers” – its proprietary brand of fast DC chargers, at least on the busiest highway networks in India.
Until then, Teslas will only serve as an embellishment on Indian roads. While Tesla might give the EV market in India a much-needed boost, perhaps even enhancing the overall appeal of electric vehicles – the systemic issues preventing EVs from selling in higher numbers will take much longer to iron out.
Eqwires Research Analyst
Top-notch SEBI registered research analyst
Best SEBI registered Intraday tips provider
info@eqwires.com
Telegram | Facebook | Instagram
Call: +91 9624421555 / +91 9624461555
www.eqwires.com
