Powerwall Header

Powerwall. Image source: Tesla.

Tesla Motors (NASDAQ:TSLA) has been eyeing the Indian market for some time now. Prime Minister Narendra Modi visited California last year and met with Elon Musk. Musk tweeted last year that discussions revolved primarily around battery technology, though, not electric cars. Import duties on cars are too high right now -- often over 100% -- for Tesla to viably compete in India.

But batteries are a different topic altogether.

Two peas in a pod: solar and batteries
India has been aggressively pushing solar lately, and state-owned Solar Energy Corp. of India has been soliciting bids for solar projects in recent months.

Bloomberg reports that India is planning on adding an energy storage requirement for the bids, which would be a potentially huge boon to battery makers, including Tesla via its Tesla Energy subsidiary. Samsung's battery subsidiary would also likely want in on the action, and Panasonic (Tesla's battery partner), too. We're talking about storage capacity of 100 megawatts that will need to be included in solar bids.

However, lithium-ion batteries are currently more expensive than traditional lead-acid batteries by a substantial margin. Reducing this cost differential is critical for the battery market to grow in India to accommodate increased solar demand.

Tesla Energy begins
Tesla Energy is just now starting to ship products. The first Powerwalls were shipped out of the Gigafactory in the fourth quarter to customers in the U.S., Australia, and Germany.

Teslaenergy

Rendering of a utility-scale Powerpack deployment. Image source: Tesla.

Tesla has previously said that the Gigafactory will be the first of the kind, and that future Gigafactories around the world would be on the table if market demand continues to rise. Musk has even directly acknowledged that it would make sense to build a Gigafactory in India due to "high local demand." Modi has expressed interest in attracting foreign investments in order to fund renewable energy infrastructure expansion.

As the first Gigafactory continues to ramp, and potential future Gigafactories come on line, battery costs should continue to fall rapidly.

With a side of Model 3
A couple years ago, Tesla CIO Jay Vijayan noted that Tesla is interested in launching the Model 3 in India, which would be positioned as an entry-level luxury vehicle. The biggest hurdle is the aforementioned unreasonably high import tariffs that effectively double the price of the car.

But for now, the most promising opportunity on the horizon is for Tesla to sell batteries into the growing market.

Evan Niu, CFA owns shares of Tesla Motors, and has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.