Indian auto parts manufacturers are becoming favoured suppliers for Tesla Inc as the company seeks to reduce its reliance on China, according to sources familiar with the matter. Tesla is reportedly willing to pay a premium for these components. The electric car giant currently procures various India-made parts, ranging from small plastic components to complex differential systems and wheel hubs. Industry data from Mint indicates that, in the 2022-23 period, 30 component manufacturers, including Indian firms and multinational companies with operations in India, exported parts valued at $135-150 million to Tesla. However, this figure is expected to increase when considering additional sales by Tier-2 and Tier-3 suppliers.

Key players in this supply chain include Sona Comstar, the largest Indian supplier for Tesla, along with Graziano Trasmissioni India (a DANA group company), Tata AutoComp Systems, CISWW Engineering India, and Bharat Forge. The details of these suppliers' business relationships with Tesla remain undisclosed due to non-disclosure agreements.

In September, India's commerce and industry minister, Piyush Goyal, stated that Tesla had sourced nearly $1 billion worth of auto parts from India in 2022 and was on track to double this amount in the following year. Goyal's recent visit to Tesla's manufacturing facility in Fremont, California, coincided with discussions about a potential new national electric vehicle (EV) policy in India, which could include reduced import duties on EVs if foreign automakers like Tesla commit to local manufacturing.

Tesla's move to diversify its supplier base away from China is driven by a desire to mitigate supply chain risks amid ongoing tensions between the U.S. and China. While China has lower raw material costs, Tesla views India as a quality alternative, even if it involves slightly higher prices. The company's outsourcing to India includes complex machine parts, reflecting a broader trend of sourcing from countries like India, Vietnam, and Mexico, especially for commodity parts.

The Indian government is actively encouraging global EV manufacturers to invest in the country, positioning India as a hub for talent and manufacturing in green mobility solutions. Reports suggest that a new national EV policy may lead to lower import duties for EVs up to a specified price level, incentivising companies to engage in local manufacturing within the next few years. This aligns with Tesla's interest in targeting the mass-premium segment of passenger EVs in India.