The Narendra Modi government and Elon Musk’s Tesla are reportedly close to clinching an agreement that will lead to the electric car maker initially investing $2 billion in a plant in India for which it will get tax reliefs over the first five years.

A Bloomberg report said Tesla would commit an initial minimum investment in the proposed plant of around $2 billion and would consider increasing purchases of auto parts from India to as much as $15 billion.

It had sourced parts worth $1 billion from India last year.

In September, commerce minister Piyush Goyal had disclosed the EV giant is likely to source components worth $1.9 billion in 2023.

Goyal had recently visited Tesla’s plant in Fremont, California where he met top executives of the company. He could not meet Musk who was unwell. Musk later took to micro-blogging platform X to apologise to Goyal for his absence at Fremont.

Tesla has been targeting India which was the world’s third-largest auto market after China and the US.

The company had sought certain import tax concessions ahead of its investment in the country. At present, an import duty of 70 per cent is levied on cars under $40,000, which rises to 100 per cent for cars that cost more.

While the Indian government initially said it would not offer any relaxations, recent reports indicate a rethink, provided the companies set up plants in the country.

The Bloomberg report said the US automaker would also seek to make batteries in India to bring down costs and an announcement could be made at an investor meet in Gujarat in January.

Tesla is considering Maharashtra, Tamil Nadu and Gujarat as the potential sites for its proposed plant as the states already have well-established ecosystems for electric vehicles and exports.

While Tesla does not import cars directly into India because of high tariffs, its locally-made cars could be priced up to $20,000 (around Rs 17 lakh).

Recent reports said the multinational automotive company is looking to build its most affordable EV in Germany. Its most affordable vehicle at present is The Model 3 which begins with a tag of $38,990 in the US.

A recent article from McKinsey’s Automotive & Assembly Practice and the McKinsey Center for Future Mobility said
India is poised to majorly embrace electric vehicles.

The articles said 70 per cent of top-tier car buyers in the country are willing to consider an EV for their next purchase compared with a global average of 52 per cent.

The study said the rapid transition signifies a decisive inflection point even as the demand for petrol and diesel cars has seen an increase in recent years.