Tesla gets closer to pact with India for EV imports, local factory

India is nearing a deal with Tesla Inc., permitting the American automaker to export its electric vehicles to the country starting next year. The agreement also includes plans for Tesla to establish a factory in India within a two-year timeframe.

An announcement could come at the Vibrant Gujarat Global Summit in January. 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 $2 billion, and would look to increase purchases of auto parts from the nation to as much as $15 billion.

The US automaker would also seek to make some batteries in India to bring down costs. No final decision has been made and the plans could change. Tesla CEO Elon Musk said in June that Tesla plans to make a “significant investment” in India and he intends to visit in 2024.

Breaking into the world’s most-populous nation, where demand for electric vehicles is growing among aspirational middle-class consumers, would be a boon for Tesla, which currently has factories in the US, China and Germany.

The Narendra Modi government has been working to promote faster adoption of cleaner transportation and boost local electric vehicle manufacturing.

Despite some initiatives, battery-powered cars only made up 1.3% of all passenger vehicles sold in India last year, indicating that the country's EV sector hasn't taken off. Due to the high initial cost of electric automobiles and the scarcity of charging stations, buyers are unwilling to switch.

Trade minister Piyush Goyal, who visited Tesla’s plant in Fremont, California earlier this month, said in September that Tesla is planning to almost double purchases of auto parts from India to $1.9 billion this year. The electric carmaker sourced parts worth $1 billion from the nation last year, he said.

Tesla and India, which is the world’s third-largest automobile market, reopened dialogue 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 that have been made in China.