By Aditi Shah, Shivangi Acharya and Victoria Waldersee
NEW DELHI/BERLIN (Reuters) - Tesla (NASDAQ:TSLA) has begun production of right-hand drive cars at its plant in Germany for export to India later this year, three people aware of the company's plans told Reuters, as it moves ahead with a possible entry into the world's third-largest car market.
A team from Tesla is expected to visit India later this month to look at sites for a local car manufacturing plant that would require an investment of about $2 billion, said two of the three people, who declined to be named because the plans are not public yet.
India last month slashed the import tax rate on certain electric vehicles if their makers invest at least $500 million in the country and start production there within three years. The move is a win for Tesla, which had lobbied for months for lower taxes, but faced resistance from local carmakers.
"The right-hand drive cars which will be allocated to India, they have started building them," one of the people said, with some cars due to be shipped to India by the end of the year.
It was not immediately clear which model Tesla plans to export to India. It currently produces only the Model Y at its factory near Berlin.
Under the new Indian policy, companies can import up to 8,000 cars a year at the lower tax rate.
Tesla did not immediately respond to an email seeking comment outside U.S. office hours.
The plans for shipments to India are the first indication of right-hand drive (RHD) cars being produced in Berlin. Tesla's Shanghai plant, its primary export hub located nearer to right-hand-drive markets, such as Australia and Japan, has so far handled production of such vehicles.
Tesla imported RHD Model Y vehicles for its launch in the UK from China and has not said whether it has shifted to importing from Berlin.
The carmaker has eyed the Indian market for years and its officials visited the country several times over the past year. CEO Elon Musk also met Prime Minister Narendra Modi in New York last June.
Tesla's push into India comes at a time when slowing EV demand in its main U.S. and China markets coincides with intensifying competition from Chinese players. That caused Tesla to report a drop in its first-quarter deliveries and miss estimates.
Tesla's India entry plan also includes investment in a charging network, which will come on top of the $2 billion earmarked for the plant, and sourcing more components locally, said one of the three sources.
"Tesla already imports parts from India and is now looking at reducing sourcing from China and making India a bigger sourcing hub," said the person.
Tesla is looking at the southern state of Tamil Nadu, Maharashtra in the west, and Modi's home state of Gujarat for its factory, which it expects to build in two years, two of the sources said.
India's EV market, small but growing, is dominated by domestic carmaker Tata Motors (NYSE:TTM). Electric models made up 2% of total car sales in 2023 but the government is targeting 30% by 2030.
In January, Tesla's Vietnamese rival VinFast (NASDAQ:VFS) agreed to invest $2 billion in India and started building an EV factory in Tamil Nadu state.