Following a meeting with India's Prime Minister Narendra Modi in New York City, Tesla (TSLA -0.35%) CEO Elon Musk was enthusiastic about investing in what is now the world's most populous country (India just passed up China with nearly 1.43 million people). In speaking with reporters following the meet-up, Musk said "I am confident that Tesla will be in India and will do so as soon as humanly possible."

This could eventually mean a new growth outlet for the leader in electric vehicles (EVs), but Tesla investors might want to curb their enthusiasm regarding India for now.

A turning point for Tesla?

Many companies are looking to diversify their base of operations -- including tech manufacturing -- away from mainland China as political tensions between Washington D.C. and Beijing simmer. India has been one key country that can provide said diversification, which was the gist of Modi's visit to the U.S. And as it pertains to Tesla, Musk's talks with Modi seem to be a key turning point.  

In 2022, Tesla said it indefinitely shelved plans to begin selling its EVs in India. As reported by Reuters, the plan was to open showrooms in key cities in India, and import cars from Tesla's Gigafactory Shanghai and from manufacturing lines in the U.S. However, India has steep tariffs on imported vehicles, sometimes as high as the value of the car itself (effectively doubling the final sticker price for consumers), to protect its domestic automaking industry. Not able to secure lower tariffs, Tesla decided to put plans on hold.

After talking with Modi, however, Musk's interest in India has been rekindled. Specifics are still forthcoming, but it wouldn't be surprising if Tesla decided to invest in new manufacturing facilities (perhaps cars, but also for making battery packs or solar panels) in India to avoid those tariffs and tap into that massive market. 

Why is India important?

Tesla is of course a growth company, and India is home to nearly 20% of the world's population. It would be fair to say it could sell a lot more cars if it were to set foot in India. But Musk's comments after the Modi talks provide some other hints as to possible plans. India could be a highly lucrative market because:

  • India is a fast-growing economy, with a rapidly developing middle-class consumer base
  • The country has a large and affordable base of labor (paying for manufacturing in China has been getting more expensive over the years)
  • India has a large and thriving tech development community
  • India has an expansive industry that's ripe for renewable energy projects and automation

Tesla has lofty goals to sell a lot more cars in the coming years, but its energy business is only just beginning to take off too. Energy storage deployments (battery packs for energy grid management) increased 360% year-over-year in Q1 2023. A new battery factory in Shanghai was announced earlier this year. And in recent weeks, General Motors (GM 0.39%), Ford (F -0.68%), and EV start-up Rivian (RIVN 0.79%) have all agreed to adopt Tesla's vehicle charging standards. Global automaking giant Hyundai is reportedly considering using the Tesla charging network too.

Something similar could happen in India, which is home to large automakers like Tata Motors (which also owns Jaguar Land Rover), Mahindra & Mahindra, and multiple Indian subsidiary companies for multi-nationalists like Suzuki and Hyundai. Suffice to say there is opportunity for Tesla to land new EV charging network deals, and support them with its battery pack and solar technology. 

Don't get too excited just yet

Before getting optimistic about the opportunities India presents, bear in mind that Tesla's existing plans (Cybertruck production, existing battery production ramp-up, etc.) will be the primary growth driver. An improving global economy, especially in China, will also help rekindle profitability in the next couple of years.

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For now, any investment in India isn't official yet. And when something concrete is announced, it generally takes at least a couple years for a new manufacturing operation to get built, let alone scaled up to full production. Any India-driven boost for Tesla could be a long way down the road. 

Nevertheless, Musk is keen on getting a foot in the door in the massive market that is India, and eventually doing so could help keep Tesla in growth mode for years to come. With a free cash flow-positive operation, $22.4 billion in cash and short-term investments, and just $1.75 billion in long-term debt, Tesla certainly has the capability to invest in India unlike any other automaker before it.