Tesla’s India plans won’t include manufacturing and here’s why

Tesla’s India plans won’t include electric vehicle manufacturing, according to the local minister of industries, and the reason is quite simple.

Tesla has been trying to enter the Indian automotive market for years, but it has been unable to circumvent the country’s protectionist efforts, which include high import duties on foreign vehicles.

There have been several false starts in the country. CEO Elon Musk has stated on several occasions that Tesla is actively trying to enter the market.

For the last five years, it seemed that the American automaker was on the verge of entering the Indian market with local hires and even vehicle validation, but it never materialized.

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Over the past few months, a new initiative has been underway, and it has shown promise.

It came after India finally reached a compromise on its import duties on cars last year, opening the door for Tesla and other EV automakers to launch in the country.

The deal involves significantly reducing import duties for a limited number of electric vehicles, provided the automaker makes a substantial investment and commitment to establish an electric vehicle factory in India within the coming years.

Since then, Tesla has started hiring service and sales staff, and there have been several reports that the automaker is closing in on some retail and service locations.

However, we now learn that Tesla doesn’t plan to take advantage of the deal, which includes establishing local vehicle manufacturing.

HD Kumaraswamy, India’s Ministry of Heavy Industries, announced that Tesla won’t be one of the automakers planning to build EV factories in the country (via BBC):

“Mercedes Benz, Skoda-Volkswagen, Hyundai and Kia have shown interest [in manufacturing electric cars in India]. Tesla – we are not expecting from them.”

Another Indian government official added that while Tesla participated in the first round of discussions with stakeholders, it stopped participating in the process after, while the previously mentioned automakers continued.

Kumaraswamy still said that he believes Tesla plans to open “two showrooms” in the country, but it’s not clear how it plans to handle the situation with the import duties.

Tesla also faced another recent setback in India when it lost its head of the country last month.

Electrek’s Take

I said it several times in the last few months amid Tesla’s latest effort to enter India, but I’ll repeat it: I’ll believe it when I see it.

We have been burned too many times on this.

Showrooms are one thing, but Tesla also needs to deploy service and charging stations. If its vehicles are still subject to steep import duties without the benefits of the promise of a manufacturing investment, it’s going to be a tough market for Tesla.

The primary reason Tesla is not committing to a manufacturing facility in India is likely due to its factories currently operating at approximately 60% capacity.

It makes no sense to invest in more manufacturing capacity if you are not already utilizing your current fully deployed capacity. That’s also why Tesla halted its Gigafactory Mexico project, along with the US tariffs.

Tesla currently has a demand problem. Not a production capacity demand.