Tesla, which is looking to start sales in India soon, is in talks with carmakers in the country to explore the option of entering into a contract manufacturing arrangement here, according to industry sources. For that, the US-based carmaker has initiated discussions with manufacturers operating below their full capacity. Recently, Tesla also initiated homologation for the Model Y and Model 3 in India.
- Tesla is in talks with a Japanese and an Indian carmaker
- It is keen to partner with carmakers operating below full capacity
- The discussions for contract manufacturing are still in early stages
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 both parties reaching mutually beneficial commercial terms.
Meanwhile, Tesla will start India sales by importing its initial models as completely built units, and it does not want to set up a greenfield unit here in the first year itself. If the Elon Musk-led company finalises a contract manufacturing deal with an Indian automaker, it would be the first such endeavour for a US carmaker.
Why is Tesla opting for contract manufacturing?
Lesser capital investment and quicker time-to-market
The company decided to explore contract manufacturing after giving some thought to the other option of setting up a local manufacturing plant under the government’s proposed EV policy. However, this policy requires a minimum investment of $500 million (Rs 4,150 crore) in capacity to secure a lower 15 percent import duty on cars, capped at 8,000 units per annum.
Besides, contract manufacturing would 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 focus on brand-building and sales instead
Geopolitical developments may have also influenced the decision not to go for local manufacturing initially. Industry experts say that given that a lower duty is on the anvil, it does not make sense for Musk to set up a factory in India. Instead, Tesla will likely focus on brand-building and sales infrastructure, ensuring it reaches its target consumers 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, BMWÂ and Audi operate.
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