Tesla is reportedly planning to invest $2-3 billion in an electric vehicle plant in India, potentially developing capacity to manufacture 500,000 EVs/year.

Citing unnamed sources familiar with the matter, the Financial Times reported on Wednesday the carmaker will send a US-based team to India by late April to scout potential sites. The focus would be primarily on the Maharashtra, Gujarat and Tamil Nadu states.

The news, yet to be confirmed by Tesla, would indicate great progress in the long negotiations between Elon Musk and the Indian government. The EV maker has planned to enter India for a while but has noted prohibitive conditions.  

Last month, the Indian government lowered import taxes on certain EVs produced by “reputed global automakers” that commit to invest at least $500 million within three years. Such companies would also have to attain a localisation level of 50% within five years. Under the scheme, the 15% import duty will apply to completely knocked down (CKD) units, limited to 8,000 EVs per year, Kallanish notes.

The program seeks to promote India as a “manufacturing destination,” the government said. “This will provide Indian consumers with access to latest technology, boost the ‘Make in India’ initiative, strengthen the EV ecosystem by promoting healthy competition among EV players leading to high volume of production, economies of scale, lower cost of production.”

Additionally, the policy seeks to reduce crude oil imports, lowering the trade deficit and reducing air pollution. By 2030, the government plans a 30% EV market penetration, compared to 2% currently.

It is unclear if Tesla will start assembly of CKD units in India or invest in a full gigafactory, a business model that includes both electric vehicle and battery manufacturing. The carmaker, which is also negotiating a factory in Mexico, said last year it plans to produce a cheaper model priced at around $24,000.

According to reports, Tesla told Indian officials that it is considering building the smaller, cheaper car in the proposed Indian factory. The EV would be sold in India and exported to Southeast Asia, the Gulf, Africa and southern and eastern Europe.  

In March, Indian conglomerate JSW Group and MG Motor India, a subsidiary of China’s carmaker SAIC, announced ambitions to sell 1 million passenger EVs by 2030. Promising “deep localisation” the JV said it will launch one new EV model every three to four months. In addition to EV manufacturing in Gujarat and Orissa, the new partners vowed to establish an ecosystem with battery and e-drive production.