Tata Electronics And Tesla Ink Semicon Agreement

Tesla has inked a strategic agreement with Tata Electronics to acquire semiconductor chips for its global operations.

This agreement, executed discreetly a few months ago, holds significance as it positions Tata Electronics as a supplier for top-tier global clients seeking to establish a pivotal segment of their semiconductor value chain within India, as per an ET report.

The EV major is eager to enter India, which stands as the world’s fastest-expanding automotive market. Tesla promoter Elon Musk is also visiting India this month for a meeting with Prime Minister Narendra Modi. Musk is expected to announce potential Indian investments, including a commitment of funds toward EV manufacturing facilities. 

India Electronics and Semiconductor Association’s (IESA) president Ashok Chandak stated that Tesla’s move to establish a local ecosystem of suppliers for electronics and subsystems indicates its aim to reduce dependency on a single market. However, the major concern is the local sourcing of semiconductors. “This needs improvement in the supply chain as value addition for the industrial and automotive segments is much higher,” Chandak told ET.

Most industry experts estimate that Tesla will invest about $2 Bn – $3 Bn in India to manufacture electric cars.

The development comes a month after the Centre approved a new policy under which EV companies would have to pay lower duty on imports of EVs if they agree to set up manufacturing facilities in the country.

Under the scheme, import duty on vehicles with cost, insurance and freight (CIF) value of $35,000 or above will be reduced to 15% for five years for companies which agree to invest at least INR 4,150 Cr (about $500 Mn) in India to set up manufacturing facilities. Tesla may initially focus on premium electric models for the Indian market and explore local manufacturing options for entry-level electric cars.

The development comes at a time when the electric car maker is in talks with Reliance Industries for a potential joint venture to build a manufacturing unit in the country.

In recent times, Tata Electronics has established semiconductor manufacturing facilities in Hosur (Tamil Nadu), Dholera (Gujarat), and Assam, with plans for further expansion to create a robust supply system across India. The company has invested over $14 Bn in the business thus far.

Meanwhile, Tesla is preparing for its first big shipment to India and is also planning to ramp up manufacturing. Reports suggest that Tesla has started the production of right-hand drive vehicles at its factory in Germany, moving closer to a possible entry into the Indian market later this year.

Tesla’s India entry comes as the company faces slowing EV demand from its two largest markets, the US and China. In China, the company is facing intense competition from Chinese OEMs, while some quality and manufacturing issues have damaged its reputation and market share in the US. 

India primarily relies on two-wheelers and three-wheelers for electric vehicles (EVs). However, by 2030, there’s anticipated to be a substantial increase in electric cars on Indian roads, driven largely by competitive pricing strategies from manufacturers. 

While the current market for electric four-wheelers in India is limited, the momentum favours EVs. Sales of electric vehicles surpassed 1.5 Mn in 2023, dominated by two-wheelers and three-wheelers, as reported by Inc42. Despite Tata Motors leading the EV four-wheeler segment, electric cars accounted for only 2% of total car sales in 2023.