Made-in-India Tesla inches closer: Agreement with Musk's co in works

India is closing in on an agreement with Tesla Inc. that would allow the US automaker to ship its electric vehicles to the country from next year and set up a factory within two years, according to people familiar with the Indian government's thinking.

An announcement could come at the Vibrant Gujarat Global Summit in January. The states of Gujarat, which is Prime Minister Narendra Modi’s home base, Maharashtra and Tamil Nadu, are under consideration because they already have well-established ecosystems for electric vehicles and exports, another person said.

Tesla would commit an initial minimum investment in any plant of around USD 2 billion, and will seek to increase auto parts purchases in the country to as much as USD 15 billion. The US automaker would also seek to manufacture some batteries in India to bring down costs, the source said.

The sources said that no final decision has been made yet and that plans may change. Tesla CEO Elon Musk said in June that Tesla plans to make a “significant investment” in India and intends to visit in 2024.

Representatives from India's Ministry of Heavy Industries, which oversees the automobile sector, and the ministries of finance, and commerce and Industry, did not respond to requests for comment. Tesla also did not respond to a request for comment.

Breaking into the world's most populous nation, where demand for electric cars is growing among aspirational middle-class consumers, would be a boon for Tesla, which currently has factories in the United States, China and Germany. Modi's government seeks to increase domestic manufacturing of electric vehicles and encourage faster adoption of cleaner transportation.

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Despite these efforts, India's electric vehicle market hasn’t taken off, with attery-powered cars accounting for just 1.3% of all passenger cars sold last year, according to BloombergNEF. Buyers are hesitant to make the switch due to the high upfront cost and a dearth of charging stations.

Tesla does not import cars directly into India because of the high tariffs that are levied. The people said that when its first locally made cars go on sale, they could retail for at least USD 20,000.

Trade Minister Piyush Goyal, who visited Tesla's factory in Fremont, California, earlier this month, said in September that Tesla plans to double India's purchases of auto parts to USD 1.9 billion this year. The electric car maker sourced parts worth USD 1 billion from the nation last year, he said at an event in New Delhi at the time.

Tesla and India, the world's third-largest automobile market, reopened dialog in May following a year-long impasse. Musk has criticized India's high import taxes and its EV policies, and India, in turn, has advised Tesla not to sell cars in the country made in China, its political rival.

India is now reportedly considering lowering import taxes for international EV manufacturers for a period of five-year period if those firms eventually commit to setting up local factories.

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