For Tesla, India represents big promise—and some peril

Elon Musk would need to show that his company can successfully produce a cheap, mass-market vehicle. (Reuters / Tingshu Wang)
Elon Musk would need to show that his company can successfully produce a cheap, mass-market vehicle. (Reuters / Tingshu Wang)


A factory in India would be a significant risk—but maybe one worth taking.

After a long wait, Tesla may finally be on the road to India.

Building electric vehicles in the world’s most populous country—and the third-largest auto market by units sold—would have obvious long-run strategic value. But Elon Musk, who said on X in early April that he would meet with Prime Minister Narendra Modi, would need to show that his company can successfully produce a cheap, mass-market vehicle.

That is something it has struggled to do in the U.S., where it is refocusing on autonomous-driving software as its next growth engine. The company recently said it plans to cut 10% of its global workforce.

The planned Musk-Modi meeting comes on the heels of India’s new electric vehicle policy: deep import tariff concessions for companies investing a minimum of $500 million in new EV factories in India. Currently, importers of foreign EVs pay duties of up to 100%. Reuters on Wednesday reported that Tesla was mulling an investment of as much as $3 billion. Tesla itself has made no announcement, and didn’t respond to emailed request for comment.

Despite the challenges of setting up shop in India—including sometimes-shaky infrastructure and a strong labor movement—there are at least two very good reasons for Tesla to be there.

For one, the potential market size is indeed large, even if it may take a while to develop. According to India’s Ministry of Heavy Industries, India’s automobile market is worth around $151 billion and expected to cross $300 billion by 2030. The country of 1.4 billion citizens is growing at close to 7%-8% a year.

However, at present India remains an underpenetrated and price-sensitive EV market.

Counterpoint Research estimates EV sales stood at 2% of overall passenger-vehicle sales last year and will likely rise to 4% this year. The most-sold EV car model Tata Tiago fetches a maximum price of about $14,500, according to Jato Dynamics, a consumer research group. Tesla’s least-expensive car, the Model 3, starts at about $39,000 in the U.S. Only 6,554 electric cars costing over that price were sold in India last year, according to Jato.

A price-sensitive market like India is a volume game. According to Dan Ives, analyst at Wedbush Securities, Tesla will need to be price flexible—without a lower-cost vehicle, the EV maker would have a flawed India strategy out of the gate. The current market leader, Tata Motors, has been producing at a loss: Its EV margins before interest, taxes, depreciation and amortization in the quarter ended December 2023 were negative 8.2% according to Nomura.

Local content requirements could also pressure margins, at least initially. To qualify for reduced import duties, Tesla would need its Indian factories to contribute 25% of the value-added of the vehicles produced there in the first three years, and 50% in the first five.

All of this may be a bitter pill to swallow for Tesla, which is already facing strong margin pressure elsewhere, in part due to rising competition from cheap Chinese EV makers like BYD.

India’s hostility toward China, therefore, is the other big reason for Tesla to dive in.

Last year, New Delhi rejected BYD’s plan to set up a $1 billion manufacturing unit in the country, meaning it can only sell imported premium vehicles subject to the current punishing tariffs. If that dynamic persists, it adds up to a significant opportunity for Tesla—which may struggle to compete against BYD and its peers in other big emerging markets.

A bet on India would be risky for Tesla, especially given the margin pressure it is already under. But a fast-growing, China-skeptical nation of 1.4 billion may also be too tempting a long-term opportunity to ignore.

Write to Megha Mandavia at

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