One step further! Tesla is reportedly close to reaching an agreement to establish a manufacturing plant in India within two years.

Tesla's plan to build a factory in India has taken another step forward.

On November 21st, media reports quoted sources familiar with the matter as saying that India is close to reaching an agreement with Tesla. The agreement will allow Tesla to start delivering electric vehicles to the Indian market from next year and establish a factory in India within two years. If successful, this will be Tesla's sixth car factory worldwide.

One source said that Tesla may announce this news at the "Vibrant Gujarat Global Summit" to be held in January next year. Another source said that the states of Gujarat, Maharashtra, and Tamil Nadu, which are the hometown of Indian Prime Minister Modi, are all candidate locations for Tesla's factory. These three regions have already established a relatively complete system in terms of electric vehicles and exports.

Sources said that Tesla's initial minimum investment in any factory is about $2 billion. The company also plans to increase the budget for purchasing car parts in India to $15 billion and will seek to produce batteries in India to reduce costs. However, the final decision has not yet been made, and there are still variables in the plan.

In previous negotiations, Tesla had requested tariff concessions as a prerequisite for building a factory in India, but the Modi government has always refused to compromise on tariffs. This ultimately led to Tesla giving up entering the Indian market in 2022. After a year, negotiations resumed in May this year.

In order to allow Tesla to choose to build a factory in India, the Indian government has also made concessions in terms of tariffs.

New breakthrough in the long negotiations with the Indian government

Since Musk met with Indian Prime Minister Modi during his visit to the United States in June, multiple ministries, including commerce, industry, electronics, and information technology, have been discussing Tesla's plans in India.

Musk had previously stated that Tesla is expected to reach an agreement with the Indian government this year, but the biggest bottleneck is the inability of both parties to reach an agreement on import tariff terms. These tariffs have deterred many customers because in some cases, they can double the price of a car.

Therefore, for most of 2023, Tesla has been in deep discussions with the Indian government regarding tariff issues. On November 13th, it was reported that the Modi government is considering reducing tariffs to attract Tesla to build a factory.

According to two informed officials, Tesla has requested that the Indian government provide certain tariff concessions during the initial stage of entering the Indian market. This concession may be in the form of a sunset clause, which means it will be terminated after a certain period of time.

The media pointed out that currently, imported vehicles priced below $40,000 are subject to a 70% import tax in India, while vehicles priced above $40,000 face a 100% import tax. Indian officials familiar with the matter revealed that Tesla has requested preliminary tariff concessions from New Delhi. "Their (Tesla's) view has always been that they need some tariff concessions at least during the transition period."

The Indian government is considering reducing the import tariff on pure electric vehicles to 15%, but internal consensus has not yet been reached. One official said: The government hopes to create a comprehensive plan that is beneficial to the overall development of India's future, rather than a special plan targeting a specific company. In other words, other companies can also freely enjoy these plans, but the prerequisite is compliance.