India has recently emerged as the third-largest automobile market in the world, surpassing Japan, and offering immense potential in terms of sheer volume. However, the luxury EV segment, where Tesla operates in India, accounts for only about 4% of India’s total auto sales. In such a price-sensitive market, Tesla’s premium offerings may remain a niche product unless broader changes, especially tariff relief, materialise.
At present, Tesla’s strategy appears cautious. It is importing cars to test demand, rather than committing upfront to local manufacturing. This is a critical step in gauging consumer interest and understanding infrastructure and regulatory constraints before making heavy investments.
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The tariff trap
One of the biggest roadblocks to Tesla’s growth in India is India’s high import duties on cars, which can go up to 100% for completely built units. A potential India–US trade deal is currently under discussion and may ease tariffs on imported American EVs. But this is where geopolitical dynamics come into play.
The political relationship between Elon Musk and US President Donald Trump has soured, and the likelihood of Washington lobbying hard for duty cuts on EVs decreases significantly. Given Trump’s general skepticism toward EVs and environmental regulations, Tesla might not find a strong advocate in a Trump administration which has been locked in stretched negotiations over a trade deal with India.
That puts Tesla at a strategic crossroads — either wait for a favourable trade agreement or begin committing to local manufacturing in India to gain duty relief under the Indian government’s new EV policy.
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India’s policy pitch for Tesla
In a bid to attract foreign EV makers and boost domestic manufacturing, India last year introduced a policy that allows reduced import duties for companies willing to manufacture locally. This phased model gives a few years of tariff relief, provided companies set up factories and progressively increase local sourcing to 50% within five years.
So far, Tesla has not shown interest in setting up a plant in India. Elon Musk may be keeping his options open, possibly hoping a trade deal reduces duties without the need for heavy capital investments. But if the deal falls through or offers no significant tariff concessions, setting up local manufacturing may become Tesla’s only viable path to scale up in India and take advantage of its huge size when its sales are faltering globally.
However, meeting the local sourcing norm could be challenging. Tesla’s supply chain is heavily centralized, and adapting it to India’s ecosystem would take time, investment and partnership building.
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The competitive landscape and the BYD question
Tesla will not operate in a vacuum. It will face competition from established German automakers like BMW and Mercedes-Benz, which already have a footprint in India and offer EV models. But a potentially greater threat comes from its Chinese rival, BYD, which overtook Tesla globally in EV sales.
BYD has been pushing into the Indian market with models like the Sealion 7 and other lower-cost offerings. However, BYD’s expansion in India is constrained by geopolitical tensions and India’s stricter rules for Chinese investments. Even if allowed, BYD would have to find a majority Indian partner and meet the same local sourcing rules Tesla would face. Given the sensitivity around Chinese firms in strategic sectors, BYD’s manufacturing ambitions in India may be stalled or slowed by policy hesitations. This may offer Tesla a temporary competitive buffer but not an indefinite one. BYD’s entry into India will mean Tesla could face the same fate in India it is facing in other markets where BYD is outcompeting Tesla.
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Tesla drives into a crossroads
Tesla’s entry into India brings it to a crossroads. Its success in India hinges on several questions. Will India and the US strike a trade deal that includes tariff concessions for EVs? Will Tesla commit to setting up a local plant in India if duty relief does not come through? Can Tesla build or partner to meet India’s 50% local sourcing requirement in five years? Will competition intensify if BYD or other players find ways to localise manufacturing in India? Musk has often taken a wait-and-watch approach in markets with uncertain policy frameworks. In India’s case, that strategy might buy time but could also mean missing out on early-mover advantage, especially if rivals like Mercedes, BMW or even Indian EV companies scale faster.
India represents a high-risk, high-reward opportunity for Tesla. The country’s massive market size, increasing environmental focus and growing EV adoption create fertile ground. But without manufacturing and competitive pricing, Tesla risks remaining a luxury outlier in a cost-sensitive ecosystem.
The coming months, particularly how trade talks evolve and whether Musk takes a concrete step toward localisation, will define Tesla’s trajectory in India. For now, Tesla has entered the arena. Whether it can dominate or even survive here will depend on how quickly it adapts to India’s unique and often unpredictable mix of policy, politics and price.
