State governments across India are trying to lure Tesla's local suppliers to set up factories

Several suppliers of Tesla Inc. are actively exploring locations to either establish or expand their operations in India, even as the American car maker’s plans to manufacture in the country remain uncertain.

While the central government continues to woo Tesla, state governments such as Gujarat and Tamil Nadu are making significant efforts to attract the EV maker’s suppliers, under the belief that “Tesla would be more likely to go where its supplier ecosystem is,” according to sources.

Recently, three of Tesla’s suppliers conducted site visits in Gujarat. These suppliers work on various components and also supply to other auto companies, showing keen interest in Gujarat for their operations.

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Meanwhile, two European suppliers of Tesla are considering expanding their operations in Tamil Nadu. The southern state, known for its robust automotive and electronics manufacturing sector, already hosts some of Tesla’s suppliers.

This includes a European metal automotive component manufacturer looking to expand its existing operations and a German manufacturer with a joint venture in Pune, producing high-performance rubber parts.

In Tamil Nadu, they will operate under the parent company name. The German company is a prominent supplier of anti-vibration engineering applications for vehicles ranging from passenger cars to commercial trucks.

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Tamil Nadu aims to leverage its established electronics manufacturing ecosystem to attract Tesla and other EV makers, while Gujarat is also actively courting Tesla’s suppliers.

Experts highlight that Tesla’s supply chain is highly complex, involving partnerships with multiple tier I and tier II suppliers across different regions to ensure the timely delivery of high-quality products.

Soumen Mandal, Senior Research Analyst at Counterpoint Research, noted that Tesla has strategic supply chain partnerships globally for components such as batteries, telematics, power cables, LED lights, and displays.

For example, Tesla partners with BYD and CATL in China for batteries and with Panasonic and LG Energy in the USA.

These suppliers do not exclusively serve Tesla but also provide components to various other companies. For instance, with Tata Motors and Vinfast setting up massive plants in Tamil Nadu, it is likely that these suppliers will also look to serve JLR and Vinfast.

Tesla is known to prefer a local supply system to speed up production and save on transportation costs. Mandal emphasized that Tesla’s sales and production numbers are closely linked, meaning any supply chain issues can immediately impact sales. Thus, if Tesla decides to start production in India, a ready supply system will be crucial.

India is also benefiting from a global shift away from China by manufacturers. Ashwin Amberkar, an automotive analyst at Canalys, pointed out that the reduction of US manufacturers’ dependency on China has positioned India as a reliable partner to meet growing demands.

If Tesla decides to enter the Indian market, it will leverage its global supply chain players co-located in India to reduce production costs, manage supply chain risks, and comply with local sourcing regulations.

This move could lead to significant investments in the local automotive ecosystem, boosting job creation and triggering technological advancements, positioning India as a key player in the global EV supply chain.