What happened

Shares of Indian automaker Tata Motors (NYSE:TTM) were sharply higher on Monday morning, amid rumors in India suggesting that the company may be close to a deal to build Tesla (NASDAQ:TSLA) vehicles under contract. 

As of 11 a.m. EST, Tata's American depositary shares were up about 13.9% from Friday's closing price.

So what

Tata's U.S.-listed shares appear to be following the lead of its New Delhi-listed shares, which closed up 12.6% on Monday on rumors that the company is about to sign a deal with Tesla.

As reported by India's The Economic Times, the rumor is that Tata, an Indian automaker that owns the Jaguar and Land Rover luxury brands, will soon announce a deal to manufacture Tesla electric vehicles for the Indian market. 

A red Jaguar I-Pace, an electric luxury crossover SUV.

Is Tata's experience with the electric Jaguar I-Pace and its home-market Nexon EV enough to make it Tesla's preferred partner in India? Image source: Jaguar Land Rover.

Tesla has said it plans to enter the Indian market in 2021, but it hasn't provided any details. 

According to the Times, the rumor is that Tesla has been searching for an Indian manufacturing partner and settled on Tata after its due diligence process concluded that the Indian company had the best electric-vehicle infrastructure among the country's major automakers. Tata's Nexon EV is India's best-selling electric vehicle. 

Now what

While this is just a rumor -- and auto investors should discount it accordingly for the moment -- it's worth nothing that Tata's shares have had a good run recently on actual news: Sales at both its domestic Indian operation and its Jaguar Land Rover unit finished 2020 on high notes. The company's domestic sales were up 21% from a year ago in December, while Jaguar Land Rover's worldwide retail sales rose 13.1% in the fourth quarter of 2020 from the same period in 2019.

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