Tesla, which is to start sales in India soon, is in talks with multiple Indian carmakers to explore the option of entering into a contract manufacturing arrangement in the country, according to industry sources. The US carmaker has initiated discussions with carmakers operating below full capacity to explore potential manufacturing partnerships. The company recently also initiated homologation for the Model Y and Model 3 in India.
- Tesla has been in talks with a Japanese and an Indian carmaker
- Model 3 and Model Y homologation initiated in India
- Tesla keen to partner with carmakers operating below full capacity
Sources familiar with the developments have revealed that Tesla has approached a Japanese and an Indian carmaker to explore the possibility of utilising their spare capacity. The talks are still in the early stages, and a final agreement will depend on mutually beneficial commercial terms being reached.
Meanwhile, the first Tesla models will be imported as a completely built unit, and the US company does not want to set up a greenfield operation in India in the first year itself. If Tesla finalises a contract manufacturing deal with an Indian automaker, it would be the first such endeavour for a U.S. carmaker.
Why is Tesla opting for contract manufacturing?
Lesser capital investment and quicker time-to-market
The decision to explore contract manufacturing was reached after the company gave some thought to the other option – setting up a local manufacturing plant under the government’s proposed EV policy. However, this policy requires a minimum investment of $500 million in capacity to secure a lower 15 percent import duty on cars, capped at 8,000 units per annum.
Tesla’s preference for a contract manufacturing approach is to reduce capital expenditure and achieve a quicker time-to-market. Amid slowing growth and a significant capacity glut around the world, the company does not want to open an additional manufacturing front to cater to an emerging market. Globally, Tesla has an installed manufacturing capacity of 2.5-3.0 million units across the United States, Germany, and China.
Tesla likely to instead focus on brand building and sales
Geopolitical developments may have also influenced the decision not to go for local manufacturing initially. Industry experts say, given that a lower duty is on the anvil, it does not make sense for Elon Musk to set up a factory in India. Instead, it will likely focus on brand-building and sales infrastructure, ensuring it reaches its target consumer efficiently.
Tesla’s expected positioning in India
Midway between mass-market and luxury brands
Tesla has the option of sourcing batteries from its gigafactory in Germany for its India operations and is likely to initially introduce its Model 3 and Model Y, with on-road prices expected to exceed Rs 40 lakh ($45,000). These models will cater to the premium segment, positioned right in between the mainstream car market up to Rs 40 lakh and the luxury car market that starts at around Rs 50 lakh, where brands such as Mercedes-Benz, BMW, and Audi operate.
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