Tesla does a tango with Indian parts makers

Tesla now sources a range of India-made components from small plastic parts and castings, to complex differential systems used in transmission, and wheel hubs. (REUTERS)
Tesla now sources a range of India-made components from small plastic parts and castings, to complex differential systems used in transmission, and wheel hubs. (REUTERS)

Summary

  • India shift generated $135-150 mn business for component firms

NEW DELHI : Indian auto parts makers are emerging as preferred suppliers to Tesla Inc. as it diversifies away from China, two people familiar with the development said, with the US electric car giant often willing to pay a higher price for the shift.

Tesla now sources a range of India-made components from small plastic parts and castings, to complex differential systems used in transmission, and wheel hubs. Industry data sourced by Mint showed that 30 component makers —including Indian firms and multinationals with manufacturing operations in India—exported parts worth $135-150 million to Tesla in 2022-23.

However, additional sales by Tier-2 and tier-3 suppliers, that is, suppliers who provide parts to direct suppliers, are likely to add to this figure.

Graphic: Mint
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Graphic: Mint

Some of the biggest ones are Sona Comstar, the largest Indian supplier for Tesla, as well as Graziano Trasmissioni India Pvt. Ltd (DANA Graziano, a DANA group company), Tata AutoComp Systems Ltd, CISWW Engineering India Pvt. Ltd and Bharat Forge Ltd. Mint could not verify details of the suppliers’ business with Tesla, given their non-disclosure agreements with the US firm.

In September, commerce and industry minister Piyush Goyal had said Tesla sourced nearly $1 billion worth of auto parts from India in 2022, and was on track to double it this year. Goyal visited Tesla’s manufacturing facility in Fremont, California earlier this week, even as the government weighs a new national electric vehicle (EV) policy that could potentially lower import duties on EVs if foreign carmakers such as Tesla commit to invest in local manufacturing in the country. Tesla is targeting the mass-premium segment of passenger EVs in the country.

The US imposes steep tariffs on a variety of China-made goods; however, certain car parts like electric motors are excluded from this. In any case, Tesla is keen to diversify its vendor base to reduce its dependence on China to de-risk its supply chain in an environment of continuing tensions between the two.

“Tesla is outsourcing a lot of parts to India, including complex machine parts. India is considered a good, quality alternative to China even at a higher price. Tesla knows we can’t compete with China’s low raw material costs, and they acknowledge that and are ready to pay slightly higher prices," a Bengaluru-based maker of forged parts, which has recently started supplying to Tesla, said.

“A lot of the increase in Tesla’s sourcing from India is simply volumes and product-led. The value of the sourcing has also gone up because of the pick-up truck (Cybertruck) that it’s now focusing on. In general, there is a move from them to buy more from countries like India, Vietnam and Mexico, especially for small undifferentiated parts, called commodity parts, where switching time and switching costs are not high," a second supplier said on the condition of anonymity.

“Many small suppliers have emerged in the last two years to cater to this business. Indian suppliers will have the opportunity to work with the industry-leading EV maker in the world if Tesla does come to India," he added.

The Indian government is keen on global EV makers investing in the country, as it wants to position the country as a global talent and manufacturing hub for green mobility solutions. Mint on 1 November reported that foreign EV makers such as Tesla Inc. seeking an Indian foothold may have relief at hand, with the government considering lower import duties for EVs up to a certain price level.

All completely built-up (CBUs) vehicles priced below $40,000 now face an import duty of 70%, and a new national EV policy may slash it to 15-30% for EVs priced $25,000-35,000, Mint had reported. At 15% duty, these CBUs will be on par with the import duty for CKD (completely knocked down) cars. This will also come with the caveat that they begin local manufacturing in the next two to three years and a clause to claw back the duty sop if they fail to do so.

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